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As you know, the principal-agent problem stress the effect of asymmetric information between the principal and the agents on economic outcomes, the equilibrium in a principal-agent relation, under incomplete information can be characterized by the inefficiency relative to a situation of full information. Note that this inefficiency does not in itself signify the effect of special interest groups on policy process and the outcome.
While comparing a standard complete information social planner with the real world policy process, we must compare both of them on the same environment of incomplete information. When we do this we find that delegation of decisions under imperfect information can have significant implications only if Principal and agent do not have identical preferences. Otherwise i.e., when they have identical preferences there will be no problem of mechanism and process design. In policy process the great majority of relationships involve asymmetric information. The paradigm which public economics follows, takes the social planner as maximizing the welfare of the representation individual or of a weighted sum of individuals of different preferences where weights are predetermined. Hence this paradigm assumes no problem of agency. The key factor is the heterogeneity which gives rise to the agency problem, and makes the principal-agent paradigm relevant.
Consider two different consumer-directed health plans. One has a $5000 deductible, with the insurance paying for all care after the deductible has been met. The other has a $2000 d
Are there any welfare or subsidy payments that should be renewed or added? 2.What are the costs and consequences of providing the subsidies and welfare? 3.Are there any current sub
Jack and Jill live alone on an island. Their labour supply schedules are identical and given by L = (1 - t)w, where t is the income tax rate and w denotes the wage. Jill''s wage
Sustainability, more recently referred to as ‘sustainable development', came from the idea of integrating economic development and environmental protection. The concept is based on
The international monetary fund and the World Bank are the main lending financial institutions that give assistance to developing nations in the restoration of their economy. Wh
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Let us now consider a situation in which we know the timing of a change in policy but are unsure about the composition of the future policy. The association of different policy co
According to estimates by Goolsbee and Petrin (2004), the elasticity of demand for basic cable service is ?0.51, and the elasticity of demand for direct broadcast satellites is ?7.
Question: You are the Head of the Public Relations Department of an airline company. Your Chief Executive has asked you to make a presentation on crisis management to senior s
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