Adverse selection under ignorance (Q1584687)

The aim of the present paper is to examine the principal agent relationship of adverse solution when the principal is unaware of the exact distribution of the agent's types. The principal's beliefs are represented by a convex set of probabilistic distribution on the space of types. To describe the principal's behavior, the author considers a general function that represents the desutility perceived by the principal when he is confronted with a lottery whose prizes are utility payoffs. In this paper the author also analyzes the qualitative differences among the solutions corresponding to the \(H\) classes of criterial, which arise from the principal's type (pessimist or optimist) and the principal's preferences (regrets or losses).