Title: Moral hazard resolved by common-knowledge in principal-agent model

Authors: Takashi Matsuhisa

Addresses: Department of Natural Science, Ibaraki National College of Technology, Nakane 866, Hitachinaka-shi, Ibaraki 312-8508, Japan

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.

Keywords: agreeing to disagree; consensus; common knowledge; moral hazard; principal agent model; uncertainty; multi-modal logic.

DOI: 10.1504/IJIIDS.2012.047004

International Journal of Intelligent Information and Database Systems, 2012 Vol.6 No.3, pp.220 - 230

Received: 15 Jul 2010
Accepted: 10 May 2011
Published online: 16 Aug 2014 *

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