Title:      Competing Solutions to the Principal-Agent Model

Authors:    Stephen Haptonstahl

Entrydate:  2009-07-23 21:49:43

Keywords:   bargaining, principal, agent, risk aversion,
fairness, quantal response equilibrium, strategic statistical
model, random utility, experiment

Abstract:   Principal-Agent (PA) theory has been used for over
three decades to model the relationship between an
information-advantaged Agent and a Principal able to issue a
contract ultimatum. For its common implementation as a game, the
subgame-perfect Nash equilibrium is reasonably simple but
generally wrong in predicting experimental or observational
data. This paper implements PA theory theoretically and
statistically as two kinds of strategic statistical model, then
develops methods for testing competing behavioral hypotheses. I
show that subgame-perfect Nash equilibrium, risk
aversion/affinity, distributive justice/fairness theories, agent
error, and random utility can be observationally distinct and how
they might be distinguished statistically.

http://polmeth.wustl.edu/retrieve.php?id=928

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