This thesis studies existence and characterization of optimal solutions to the principal-agent problem with adverse selection for both discrete and continuous problems. The existence results are derived by the abstract concepts of differentiability and convexity. Under the Spence Mirrlees condition, we show that the discrete problem reduces to a problem that always satisfies the linear independence constraint qualification, while the continuum of type problem becomes an optimal control problem. We then use the Ellipsoid algorithm to solve the problem in the discrete and convex case. For the problem without the Spence Mirrlees condition, we consider different classes of constraint qualifications. Then we introduce some easy-to-check conditions to verify these constraint qualifications. Finally we give economic interpretations for several numerical examples. / Graduate

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This thesis studies the labour supply with aspiration-based reference-dependent preferences. The first contribution of the thesis is the theoretical modelling of behavioural contract theory. In Chapter 1, I modify the classical principal-agent model with uncertainty and moral hazard by replacing the Expected Utility preferences of the agent with chance theory preferences (Schmidt and Zank, 2013). Chance theory agents are primarily concerned with the sure wage they can obtain, i.e., the certain component in their contract, as they treat increments in bonuses markedly different to similar changes in sure wages. Similar to the classical predictions, our agents' optimal contracts are contingent payment schemes, however, they differ with respect to the level of the sure wage. I also contrast my predictions to those of the model of Herweg et al. (2010), who assume agents with expectation-based loss-averse preferences. The other contribution of this thesis is the empirical support for the theory of aspiration-based reference-dependent preferences with field data in education economics. In Chapter 2, I study aspiration-based reference-dependent preferences in undergraduate students' performance and effort provision. Students' reference points are set as their targeted grades. I extend a two-period economics-of-education model (Krohn and O'Connor, 2005) by proposing an additional utility function that is based on the difference between the realised grade and targeted grade. I design surveys and collect data by following a group of undergraduate students at the University of Manchester for two semesters of a full academic year with a two-period panel. My results provide evidence for students' reference-dependent preferences in two ways: first, a significant jump in students' proxied utility of grade is found at the reference point, which also implies students are loss averse. Second, the reference point positively affects students' effort provision. I further study the formation of the reference point and its variation over time. My results suggest that students partially update their past realised results into the formation of reference points. Further, the relative change of their reference points depends on the achievement of the past period reference point.

The Saskatchewan Wheat Pool went from being the largest grain handler in western Canada in the mid 1990s to undertaking a $405 million debt restructuring in January 2003. Provincial grain handling market share had been over 60 percent for two decades prior to the Pool becoming publicly traded in 1996. With the share conversion, the Pool began a capital expenditure program in an effort to adapt to industry deregulation and to compete with the multinationals that were entering western Canada. This program was not successful. SWPs long-term debt increased five fold over the period 19961999 and consecutive multi-million dollar net losses were incurred followed by the debt restructuring.<p>This thesis uses dominant logic theory and the principal-agent problem to analyze what went wrong at SWP. Theory suggests organizations faced with major industry change may have difficulty revising their dominant logic, which leads to organizational failure. Not only is there a tendency to hold on to established beliefs, but the creation of new beliefs is prone to error because of bounded rationality. The existence of a principal-agent problem can worsen an organizations ability to revise its dominant logic. Information asymmetry and the principals trust of the agent can lead to inaccurate beliefs and ineffective strategies being approved. <p>The results of personal interviews with twenty-one past management and elected Saskatchewan Wheat Pool personnel and grain industry affiliates are presented and analyzed in a case study format. The results suggest that deregulation of the grain handling industry and the anticipated arrival of multinational competitors pressured the Pool to respond quickly to major industry change. The Pool had difficulty revising its dominant logic; it retained outdated beliefs and accepted inaccurate new beliefs. Interviewees described how some investments were built on erroneous beliefs and lacked complete due diligence. Evidence suggests the principal-agent problem was also at play. The need for confidentiality after the share conversion increased information asymmetry, and management took advantage of the boards lack of experience as investments extended beyond the farm gate. The principal-agent problem in conjunction with an inaccurate revised dominant logic is a reasonable explanation for the Pools failure.

The Saskatchewan Wheat Pool went from being the largest grain handler in western Canada in the mid 1990s to undertaking a $405 million debt restructuring in January 2003. Provincial grain handling market share had been over 60 percent for two decades prior to the Pool becoming publicly traded in 1996. With the share conversion, the Pool began a capital expenditure program in an effort to adapt to industry deregulation and to compete with the multinationals that were entering western Canada. This program was not successful. SWPs long-term debt increased five fold over the period 19961999 and consecutive multi-million dollar net losses were incurred followed by the debt restructuring.<p>This thesis uses dominant logic theory and the principal-agent problem to analyze what went wrong at SWP. Theory suggests organizations faced with major industry change may have difficulty revising their dominant logic, which leads to organizational failure. Not only is there a tendency to hold on to established beliefs, but the creation of new beliefs is prone to error because of bounded rationality. The existence of a principal-agent problem can worsen an organizations ability to revise its dominant logic. Information asymmetry and the principals trust of the agent can lead to inaccurate beliefs and ineffective strategies being approved. <p>The results of personal interviews with twenty-one past management and elected Saskatchewan Wheat Pool personnel and grain industry affiliates are presented and analyzed in a case study format. The results suggest that deregulation of the grain handling industry and the anticipated arrival of multinational competitors pressured the Pool to respond quickly to major industry change. The Pool had difficulty revising its dominant logic; it retained outdated beliefs and accepted inaccurate new beliefs. Interviewees described how some investments were built on erroneous beliefs and lacked complete due diligence. Evidence suggests the principal-agent problem was also at play. The need for confidentiality after the share conversion increased information asymmetry, and management took advantage of the boards lack of experience as investments extended beyond the farm gate. The principal-agent problem in conjunction with an inaccurate revised dominant logic is a reasonable explanation for the Pools failure.

This study examines if three hypothesized variables affect the extent of corporate strategic information, i.e. voluntary information, in corporate annual reports, specifically in Sweden in the year of 2012. The variables deemed appropriate to the Swedish environment, i.e. firm size, ownership dispersion and performance, were retrieved from previous disclosure research conducted in a Swedish context (Cook, 1989; Adrem, 1999), as well as relevant theoretical consideration. The statistical analysis conducted in this thesis suggests that firm size is significantly positively related to the extent of strategic corporate information in Swedish listed firms’ corporate annual reports. The result hence confirms the expectation that larger listed firms to a larger extent disclose strategic corporate information, i.e. voluntary information, in their corporate annual reports. No positive relation was found between the variables performance or ownership dispersion and the extent of strategic corporate information. The results of this thesis are interpreted to suggest that asymmetric information and agency costs are important determinants of the extent of strategic corporate information, i.e. voluntary information, in Swedish corporate annual reports. Larger firms seem to reduce agency costs and narrow the information asymmetry by increasing the level of information disclosed.

Becker's discrimination theory predicted that the discrimination by employers on competitive markets should cease to exist. However, in past decades, it was shown that discrimination on the labour market is a prevalent phenomenon. In this thesis I analyse what is the impact of agency problem on the theory of discrimination. I show that when an agent (in the thesis called 'agent employer') is deciding whether to employ or not to employ a worker, his motivation is different compared to principal's. The outcome of the analysis is such that under certain assumptions, the agent employer with non-zero taste for discrimination will always choose to discriminate.

This paper will introduce the reader to the issues of moral hazard in a principal-agent setting, with the primary focus on the incentive pay models of moral hazard. Firstly, with an introduction and analysis of various microeconomic models designed to alleviate the problems of moral hazard, and secondly, with an analyses of these models in the context of a specific company, the aim of this thesis is to offer a comprehensive understanding of the specific problems caused by moral hazard in the principal-agent problem, as well as the mechanisms used to lessen such problems in the real business environment and their connection to the theoretical microeconomic models.

The time-saving bias is a cognitive error which systematically influences human perception of relationship between speed and time. As a consequence they overestimate time gained/lost when accelerating/decelerating from higher speed and underestimate time gained/lost when accelerating/decelerating from lower speed. This bias is most salient in the context of a car driving where such a misperception might lead to an excessively high travelling speed. Apart from the impact on the driving safety, unduly high speed have negative effect also on the fuel economy. An undue fuel consumption can be an issue not only for firms, but also for the environment. This work tested a formerly proposed de-biasing measure, a paceometer, in a field experiment with the intention to find out if this kind of intervention can alter drivers' behaviour in order to reduce speeding and thus increase the driving safety and decrease the fuel consumption. To test also the strength of the measure the experiment was done within a middle size company where employees did not bear driving costs. Results based on 1 year fuel consumption data of 45 participants showed no particular effect of the measure on the average fuel consumption. A reason for this finding can be an existence of a principal/agent problem which considerably affects incentives of drivers.