Wealth and the principal–agent matching

Fagandini Ruiz, Paulo Ignacio

http://hdl.handle.net/10400.21/13496

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Authors

Fagandini Ruiz, Paulo Ignacio

Abstract(s)

I study the role the agent's wealth plays in the principal–agent matching with moral hazard and limited liability. I consider wealth and talent as the agent's type and size as the firm's (principal's) type. Wealthier agents match with bigger firms, when talent is homogeneous among them, whereas for equally wealthy agents, more talented agents will match with bigger firms. I describe economic conditions over types such that pairs of higher types will write contracts in which the agent gets more than the limited liability rents. Finally, I write conditions on wealth for assortative matching in talent to hold.