An Analysis of the Principal-Agent Problem

1983/01/01 by Sanford J. Grossman, Oliver D. Hart, Oliver Hart · 2,123 citations
Economics, Econometrics and Finance · #Computer science #Computer security #Economic theories and models #Economics #Mathematical economics #Principal (computer security)

paper · doi:10.2307/1912246

published in Econometrica 51(1), 7 (Wiley)

openalex publication_date 1983/01/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/05

Abstract

Most analyses of the principal-agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent's utility being at a stationary point.An important paper of Mirrlees has shown that this approach is generally invalid.We present an alternative procedure.If the agent's preferences over income lotteries are independent of action, we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem.We use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem.'Support from the U.K.

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