Theoretical model for adverse selection problem in Islamic banking participation contracts

In this paper, we try to present a theoretical model for participatory contracts in the form of principal agent model in an asymmetric information conditions in game theory framework. Using the principal agent model, how can we solve the advrsselection problem in the Islamic banking contracts and provide a simpler and less costly model? There are two hypotheses to answer the research questions. One is the use of acheivments of principal agent model in participatory contracts is more efficient. Another is the using principal agent model in an Islamic environment would minimize the adversselection problem in this model.
The results obtained from solving of the proposed model shows that by designing participatory contracts in a banking system the first hypothesis of the research is confirmed, also the results of the model confirms the cost of participation contracts in an adnersselection environment. The most important consequence of this research the possibility of of the elimination asymmetric information condition between the bank and the client if the parties adhere to the religious and Islamic regulations, this will confirm the second hypothesis of the research. In addition it has been shown that the financial instruments in Islamic economics as new achievement of economics are usable.