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Principal–agent theory and game theory are applied to the precautionary principle (PP) to open up a new research agenda. Principals assess whether the threat is uncertain above a threshold. If it is, the principals choose, pay, and command agents to decrease the uncertainty below the threshold. The agents perform the action. The process is repeated through a feedback loop impacting the threat, after which the process is renewed. The four dimensions of the PP, that is, threat, uncertainty, command, and action, are described. Games and game characteristics in the four dimensions are recognized. Games are possible between natural, technological, and human factors causing the threat and between principals, agents, and external actors. Moral hazard and adverse selection in principal–agent theory related to the PP are considered. Twelve kinds of uncertainty are identified for principal–agent theory in the PP, that is, the natures of the threat, uncertainty, and threshold; states of nature, technology, knowledge, and information; whether a game is played; players; which game is played; strategy sets; utilities; beliefs; incomplete information; imperfect information; risk attitudes; and bounded rationality.

We consider a moral hazard problem with multiple principals in a continuous-time model. The agent can only work exclusively for one principal at a given time, so faces an optimal switching problem. Using a randomized formulation, we manage to represent the agent's value function and his optimal effort by an Itô process. This representation further helps to solve the principals' problem in case we have infinite number of principals in the sense of mean field game. Finally the mean field formulation is justified by an argument of propagation of chaos.

AbstractThis paper presents a previously unexplored type of gaming of performance data, collaborative gaming, where the performance measurement system incentivizes the executive and an agency to game collaboratively. The paper shows how overlapping incentives between government departments and agencies to present successful implementation of programs can drive collaboration to modify performance targets and/or performance measurements. The argument is illustrated by two brief case studies of collaboration between the Swedish Department of Employment and the Swedish Public Employment Service in the implementation of labor‐market programs.

This paper analyses principal-agent contracts when the risk-averse agent's action generates information that is not directly verifiable but is used to make a risky decision in a formulation more general than previously studied. It focuses on the impact on the decision made and the contract used, establishing a necessary and sufficient condition for the principal to gain by distorting decisions away from what is efficient and conditions under which there is no conflict between incentives to make decisions and to take action. Applications to investing in a risky project and bidding to supply a good or service illustrate those results.