'Escaping the First Order Approach to Principal Agent Problems' Seminar by Professor Ian Jewitt (DREAM)

Abstract: The standard Moral Hazard Principal Agent Problem has been one of the cornerstones of Information Economics for half a century - but arguably it has remained rather inscrutable.

The First Order approach is still the main tool of analysis but typically it is not fit for purpose and fails for very natural cases, such as normal measurement error. The paper goes beyond the FOA to solve the PA problem for a wide class of specifications including all exponential families. Interesting phenomena arise: monotone likelihood ratio but non monotonic wages, second best effort level higher than first best in the presence of moral hazard.

Biography: Professor Jewitt has conducted significant research into microeconomic theory, especially information economics and decision theory and was recently elected a Fellow of the British Academy in recognition of his contribution to research.