The Theory of Incentives: The Principal-Agent Model

By Jean-Jacques Laffont; David Martimort | Go to book overview
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9
Limits and Extensions
The goal of this concluding chapter is to point out a number of possible extensions of the basic paradigms developed in the preceding chapters. All of these chapters, even though they deal with different kinds of agency costs, have a number of key assumptions in common. These assumptions are
the absence of private information for the principal,
the existence of a costless and benevolent court of law that enforces contracts,
the ability of players to commit to the contract they have signed,
the signing of the contract taking place before the partners perform any specific investment that is valuable for their relationship,
the availability of a whole range of verifiable observables that can be used in a contract as screening devices,
the complete rationality of all players, and
the exogeneity of the information structures.

-347-

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