The Principal-Agent Model under Knightian Uncertainty

It is assumed that principal and agent both have common knowledge on the uncertainty in the previous research. In many practical settings, principal and agent disagree with the uncertainty, which should influence the incentive contract between the principal and agent. In this paper, principal-agent model is developed under the Knightian uncertainty. Some intuitional conclusions have been proved. The results inplies that the incentive contract depends on the knowledge gap between the principal and agent. The smaller is the gap, the more efficient is the contract. The agent would try to increase the risk sharing attitude and then the principal must compensate more to the agent.