Article ID: | iaor2013625 |
Volume: | 74 |
Issue: | 2 |
Start Page Number: | 219 |
End Page Number: | 239 |
Publication Date: | Feb 2013 |
Journal: | Theory and Decision |
Authors: | Pfeiffer Thomas, Schneider Georg, Lffler Clemens |
Keywords: | agency theory, modelling |
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.