Residual claimant
Encyclopedia
In economics, the residual claimant is the agent who receives the net income
(income after deducting all costs).
Residual claimancy is generally required in order for there to be moral hazard
, which is a problem typical of information asymmetry
. This is specifically the case for the principal–agent problem.
Net income
Net income is the residual income of a firm after adding total revenue and gains and subtracting all expenses and losses for the reporting period. Net income can be distributed among holders of common stock as a dividend or held by the firm as an addition to retained earnings...
(income after deducting all costs).
Residual claimancy is generally required in order for there to be moral hazard
Moral hazard
In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...
, which is a problem typical of information asymmetry
Information asymmetry
In economics and contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure...
. This is specifically the case for the principal–agent problem.