The irreversibility effect and agency conflicts

The irreversibility effect and agency conflicts

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Article ID: iaor2013625
Volume: 74
Issue: 2
Start Page Number: 219
End Page Number: 239
Publication Date: Feb 2013
Journal: Theory and Decision
Authors: , ,
Keywords: agency theory, modelling
Abstract:

This paper studies the influence of agency conflicts on the irreversibility effect. Using a dynamic variant of the static Baron and Myerson (1982) adverse selection model, we characterize under which circumstances the irreversibility effect arises in the presence and absence of an agency conflict. In particular, we find that in the presence of an agency conflict the irreversibility effect arises in more circumstances than in the standard first‐best analysis that abstracts from agency problems.

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