Authors

• Qahreman Abdoli
• Sayyed Hassan Qavami

Abstract

The paper tries to provide a new methodology for the analysis of the Musharekah
contract as an Islamic finance instrument. For this sake, the Musharekah contract is
comparatively analyzed using the game theory (principle agent). Considering the
fact that the information set between principle (bank) and the agent (customer)
might be symmetric or asymmetric, the Musharekah Contract is analyzed in two
different cases in the extended form of the games and the best strategy which leads
to the maximum profit is shown. It should be noted that in the case of symmetric
information, the cost of contract is low and information rent is not available. In this
context, the Musharekah Contract becomes operational just by considering the
condition of Musharekah. However, in the case of asymmetric information, the
provision of the Musharekah contract gets complex and if the bank faces the
problems of moral hazard and adverse selection, the condition for satisfaction of
Musharekah Contract will be different. This paper discuses different situations using
the extended form of games.

Keywords

• Musharekah contract
• principle-agent model
• symmetric information
• asymmetric information
• moral hazard
• adverse selection