Roy Radner and incentive theory
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How to provide agents with sufficient motivation to do what society — or its proxy in the guise of a center or social planner — wants them to do is the subject of incentive theory. The theory has normative force whenever, metaphorically speaking, the invisible hand of the market fails to provide such motivation automatically. Market failure can come about either because markets are imperfect in some way or because they do not exist at all. Indeed, a leading example of a non-market environment is the internal organization of a large corporation. Alfred Chandler (1977) made just this point when he gave his study of the modern American enterprise the title The Visible Hand.
KeywordsMoral Hazard Adverse Selection Solution Concept Dominant Strategy Pareto Frontier
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