Trust and Incentives in Principal-Agent Negotiations

  title={Trust and Incentives in Principal-Agent Negotiations},
  author={Gary J. Miller and Andrew B. Whitford},
  journal={Journal of Theoretical Politics},
  pages={231 - 267}
The canonical principal-agent problem involves a risk-neutral principal who must use incentives to motivate a risk-averse agent to take a costly, unobservable action that improves the principal’s payoff. The standard solution requires an inefficient shifting of risk to the agent. This article, however, summarizes experimental research that throws doubt on the validity of this conclusion. Experimental subjects were routinely able to achieve efficiency in agent effort levels without inefficient… 

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