Agency Contracts in Matching Markets
Universitat Autònoma de Barcelona and Barcelona Graduate School of Economics (joint work with David Pérez-Castrillo)
Considering moral hazard problems in a matching market may affect the predictions of the classical principal-agent model and it provides new insights for understanding the attributes of the partners that match and the characteristics of the incentive contracts.
From the point of view of the agency theory, the interest of this extension is easy to understand. The partial equilibrium approach characterizes the optimal incentive scheme for a given principal-agent partnership. In this approach, the bargaining power is exogenously given to principals or agents, which implies that an exogenous reservation utility condition for the agent (or for the principal) determines the distribution of surplus and the form of the contract. However, when one considers explicitly the existence of several heterogeneous principals and several heterogeneous agents, some of the properties obtained in the simple version of the agency problem do not necessarily hold.
From the point of view of matching theory, the consideration of incentives between partners is a natural extension of the assignment game, where the outcome is not only a matching and a vector of prices but a matching and a vector of incentive contracts, one for each partnership.
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