Feb 24, 2011 Report No：10-34
Contract Theory: A Programming–Model Approach
This is a study to develop and solve numerical models based on Itoh’s (2003, Ch. 1) “Parts Supply Problems” for better understanding the contract theory. In the first part of this paper, by following Itoh (2003) we investigate 2- and 3-agent type cases; in the succeeding part, by using numerical examples, we examine how likely the simplifying assumptions often used in theoretical analysis are to hold. Finally, we demonstrate that we can extend these basic models to ones with a much larger number of agent types easily by exploiting the merit of our programming–model approach.
|Keywords||Principal-agent problem, adverse selection, numerical model, single-crossing property, monotonicity|