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The Principal-Agent Model with an Informative Signal to the Advantage of the Agent
Nykyforchyn I. V.

Nykyforchyn, Iryna V. (2019) “The Principal-Agent Model with an Informative Signal to the Advantage of the Agent.” The Problems of Economy 4:272–276.
https://doi.org/10.32983/2222-0712-2019-4-272-276

Section: Mathematical methods and models in economy

Article is written in Ukrainian
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UDC 330.46

Abstract:
This article deals with the problem of negative impact of information asymmetry on the market and methods for mitigating it. This problem is solved by using the methods of the economic theory of contracts. In the work, methods for reducing the information gap with the help of developing optimal contracts are considered. In particular, the application of market signaling, studied by M. Spence, which is used by a more effective agent to inform the principal about his / her “good” type, is examined. Naturally, the signal reduces the asymmetry of information, which increases the advantage of the principal, but reduces it for less efficient customers. The requirements for market signaling models are analyzed, their basic types are classified, and the main equilibrium types are considered. Based on the fact that signaling, obviously, positively solves the problem of adverse selection but increases the cost of the contract due to the costs of signaling, the basic conditions for self-selection of participants in the contract process are given. The article develops a model of information signal for the principal and the agent, which can belong to one of the two types – “good” (more effective) and “bad” (less effective). While with the classical model the agent sends a market signal in order to tell the principal his / her type, we propose a model of information signal sent by the environment and received by the agent (but not by the principal, as usual). Unlike a binary signal, in this model the signal determines the probability of the agent’s belonging to each type. The article describes the conditions of self-selection of agents at a known signal distribution function. Depending on these conditions, the agent chooses one of the two proposed contracts or refuses the contract at all. There developed a method for constructing a pair of contracts that is optimal from the point of view of the principal if he knows the distribution of the informative signal and the utility function of the agent is concave upward.

Keywords: contract theory, informative signal, information asymmetry.

Bibl.: 11.

Nykyforchyn Iryna V. – Candidate of Sciences (Economics), Associate Professor, Associate Professor, Department for Mathematics, Computer Science and Learning Methods, Precarpathian National University named after V. Stefanyk (57 Shevchenka Str., Ivano-Frankіvsk, 76018, Ukraine)
Email: ira.nyk@gmail.com

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