Abstract

Almost all principal-agent models focus on single level situation, while there exist numerous cases of principal-agent relation with multiple levels in practice. This paper develops principal-agent models with multiple levels based on subcontract phenomena. The corresponding properties about principal-agent models with multiple levels under adverse selection are explored. There exists twist of the quantity in subcontract. We also find that the efficiency of principal-agent with multiple levels is lower than that with single level.

Key words: Principal-agent model, multiple levels, incentive mechanisms, industrial organization, game theory.