In microeconomics and contract theory, the first-order approach is a simplifying assumption used to solve models with a principal-agent problem. It suggests that, instead of following the usual assumption that the agent will take an action that is utility-maximizing, the modeller use a weaker constraint, and looks only for actions which satisfy the first-order conditions of the agent's problem.
In microeconomics and contract theory, the first-order approach is a simplifying assumption used to solve models with a principal-agent problem. It suggests that, instead of following the usual assumption that the agent will take an action that is utility-maximizing, the modeller use a weaker constraint, and looks only for actions which satisfy the first-order conditions of the agent's problem.
Source: Wikipedia "First-order approach" · CC BY-SA 4.0
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