Moral hazard resolved by common-knowledge in principal-agent model
by Takashi Matsuhisa
International Journal of Intelligent Information and Database Systems (IJIIDS), Vol. 6, No. 3, 2012

Abstract: This paper investigates the role of common-knowledge in the principal-agent model under uncertainty. We treat the problem: How epistemic conditions will be able to settle a moral hazard in team in the principal-agent model under uncertainty. We shall propose a resolution programme for the moral hazard in the principal-agent model by common-knowledge. Let us assume that the agents have the knowledge structure induced from a binary relation associated with the multi-modal logic S5n or S4n. We show that the moral hazard can be resolved in the principal-agent model under uncertainty if the agents commonly know all their own costs.

Online publication date: Sat, 16-Aug-2014

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