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Economics of Markets and Organizations (Fach) / Organizational Economics (Lektion)
Chapter 2
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- Critical Assumptions Principal Agent Model agent may be budget restrained accepting contract may be unattractive for a risk averse agent when output depends not only on his effort but also on events outside of his control principals often have to rely on imperfect performance measures
- The equal compensation principle The agent will only expend effort on both tasks if their marginal rate of return is the same
- Principal-Agent Problem - Calculation Q = e Profit Principal: p*Q - w Utility Agent: U = w - C(e), maximize to get maximum effort Value contract V(e) = Profit + Utility, Value maximized -> First derivation it can be shown that it is optimal for the principal to sell ‘the firm’ to the agent = beta = price