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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Vertical Comparison and Adverse Selection under Inequity Aversion

Vol.16, No.4, December , 81–106


English Version |  Korean Version
  •   (Nagoya University)

  •   (Pusan National University)

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Abstract  

In this paper, we examine the behavior of the agent who envies his principal's wealth, and characterize the properties of the optimal incentive scheme under the adverse selection. If the agent has envy toward principal's revenue, then envy is only useful in giving incentive transfer but it has no impact on output (i.e., standard adverse selection output). However, output yields an upward distortion in efficient and inefficient type when envy depends on principal's profit. Thus, we can compare our results with canonical adverse selection under restrictive envy conditions.


Keywords
   Inequity Averse, Adverse Selection, Residual Return, Vertical Comparison

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