Hostname: page-component-5c6d5d7d68-wp2c8 Total loading time: 0 Render date: 2024-08-22T08:39:42.100Z Has data issue: false hasContentIssue false
  • English
  • Français

Agency Theory and Stochastic Dominance

Published online by Cambridge University Press:  06 April 2009

John S. Hughes
Get access Rights & Permissions [Opens in a new window]

Extract

Recently, agency theory has become popular as a means of explaining the structure of contracts between various classes of economic agents. Oftentimes the contracts of interest represent sharing rules for the payoffs that result from some production activity. In the usual two-party model of the contracting problem, one party designated the principal delegates authority for decisions affecting production to another party designated the agent. Typically, the assumptions made about the consequences of the agent's actions are that they are associated with effort on the part of the agent for which the agent (but not the principal) has disutility, and that greater effort will result in higher payoffs from production in every state of nature. Moral hazard is then introduced by assuming that the principal is unable to observe the agent's effort, or to infer what effort the agent applied through an ex post observation of the payoff that results.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 17 , Issue 3 , September 1982 , pp. 341 - 361
Copyright
Copyright © School of Business Administration, University of Washington 1982

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Fishburn, Peter. “Mean-Risk Analysis with Risk Associated with Below-Target Returns.’ American Economic Review, Vol. 67 (03 1977, pp. 116–126.Google Scholar
[2]Fishburn, Peter, and Vickson, Raymond. ‘Theoretical Foundations of Stochastic Dominance.’ In Stochastic Dominance, Whitmore, G. A. and Findlay, M. C., eds. Lexington, MA: Lexington Books (1978).Google Scholar
[3]Gjesdal, F. ‘Accounting in Agencies.’ Mimeo, Graduate School of Business, Stanford University (1976).Google Scholar
[4]Grossman, S., and Hart, O.. ‘An Analysis of the Principal-Agent Problem.’ CARESS working paper number 80–17, University of Pennsylvania (07 1980).Google Scholar
[5]Hadar, Joseph, and Russell, William R.. ‘Rules for Ordering Uncertain Prospects.’ American Economic Review, Vol. 59 (03 1969), pp. 25–34.Google Scholar
[6]Hardar, Joseph, and Russell, William R.. ‘Applications in Economic Theory and Analysis.’ In Stochastic Dominance, Whitmore, G. A. and Findlay, M. C., eds. Lexington, MA: Lexington Books (1978).Google Scholar
[7]Harris, Milton, and Raviv, Arthur. ‘Optimal Incentive Contracts with Imperfect Information.’ Journal of Economic Theory, Vol. 20 (1979), pp. 231–259.Google Scholar
[8]Holmström, Bengt. ‘On Incentives and Control in Organizations.’ Unpublished dissertation, Stanford University (10 1977)Google Scholar
[9]Holmström, Bengt. ‘Moral Hazard and Observability.’ The Bell Journal of Economics, Vol. 10, No. 1 (Spring 1979), pp. 74–91.Google Scholar
[10]Jensen, M. ‘The Performance of Mutual Funds in the Period 1945–64.’ Journal of Finance (05 1968), pp. 389–416.Google Scholar
[11]Lambert, Richard A. ‘Managerial Incentives in Multiperiod Relationships.’ Unpublished dissertation, Stanford University (12 1981).Google Scholar
[12]Mirrlees, J. ‘Notes on Welfare Economics, Information, and Uncertainty.’ In Essays on Economic Behavior under Uncertainty, Balch, M. S., Mc Fadden, D. L., and Wu, S. Y., eds. Amsterdam: North Holland Publishing Co. (1974).Google Scholar
[13]Mirrlees, J. ‘The Optimal Structure of Incentives and Authority within an Organization.] The Bell Journal of Economics, Vol. 7, No. 1 (Spring 1976), pp. 105–131.CrossRefGoogle Scholar
[14]Mossin, J.Theory of Financial Markets. Englewood Cliffs, NJ: Prentice Hall (1973).Google Scholar
[15]Porter, R. Burr. ‘Portfolio Applications: Empirical Studies.’ In Stochastic Dominance, Whitmore, G. A. and Findlay, M. C., eds. Lexington, MA: Lexington Books (1978).Google Scholar
[16]Porter, R. Burr, and Bey, Roger P.. ‘An Evaluation of the Empirical Significance of Optimal Seeking Algorithms in Portfolio Selection.’ Journal of Finance, Vol. 29 (1974), pp. 1479–1490.Google Scholar
[17]Ramakrishnan, R., and Thakor, A.. ‘The Economic Theory of Agency: Synthesis and Clarifications.’ Working paper (08 1979).Google Scholar
[18]Ross, Stephen. ‘The Economic Theory of Agency: The Principal's Problem.’ The American Economic Review, Vol. 63, No. 2 (05 1973), PP. 134–139.Google Scholar
[19]Shavell, Steven. ‘Risk Sharing and Incentives in the Principal and Agent Relationship.’ The Bell Journal of Economics, Vol. 10, No. 1 (Spring 1979), pp. 55–73.CrossRefGoogle Scholar
[20]Whitmore, G. ‘Third-Degree Stochastic Dominance.’ American Economic Review, Vol. 60 (06 1970), pp. 457–459.Google Scholar
[21]Whitmore, G. A., and Findlay, M. C., eds. Stochastic Dominance. Lexington, MA: Lexington Books (1978).Google Scholar
[22]Wilson, R. ‘The Theory of Syndicates.’ Econometrica (01 1968). pp. 119–132.Google Scholar