Asymmetric awareness and moral hazard

Abstract

This paper introduces asymmetric awareness into the classical principal-agent model and discusses the optimal contract between a fully aware principal and an unaware agent. The principal enlarges the agent's awareness strategically when proposing the contract. He faces a trade off between participation and incentives. Leaving the agent unaware allows him to exploit the agent's incomplete understanding of the world. Making the agent aware enables the principal to use the revealed contingencies as signals about the agent's action choice. The optimal contract reveals contingencies that have low probability but are highly informative about the agent's effort.

Awareness of unawareness: A theory of decision making in the face of ignorance

“…Define the set of conceivable acts, F , to be the set of all the mappings from the augmented conceivable state space to the set of feasible consequences. 5 Formally, The argument in the preceding paragraph only applies if we restrict the set of acts to maps whose range is the same set of consequences in all states. Without this restriction, we can expand the set of acts that preferences can meaningfully be expressed over.…”

How to Improve Water Resources Allocation Efficiency: A Two-Stage Performance-Based Allocation Mechanism

“…Note that the users must invest some water resources into environment protection according to rules because even though the governor could not observe the exact amount of water resources, he could distinguish whether the users invest water into the environment or not. Besides, the C 3 j and C 4 j are environmental costs, the internalization of which is the main point for the reallocation rule [29]. It means that the governor wants to transfer the C 3 j and C 4 j to the users.…”

“…It also considers conflicts of interests and asymmetric information between the governor and two water users, as well as the competition between two water users. The governor aims to maximize the system-level performances, such as system-wide economic benefits, equity, and environmental performances [27,28], while each water user only focuses on their economic revenues and thirsts for water resources as much as possible [29]. To make things worse, the governor cannot directly participate in the exact water decision-making, and cannot fully observe the actions of agents, who may act in line with their own preference rather than the governor's, which leads to moral hazard [30].…”

Adaptive identification of innovative production function of corporation

“…In practice, staff is almost always more informed about innovation production potential than management. In such cases, it is said about the asymmetric awareness of the parties [12]. In this regard, it is necessary to take into account the human factor, or the activity of the parties associated with the desire to use the available information to achieve their own goals [13].…”