A Solvable Dynamic Principal-Agent Model with Linear Marginal Productivity
Joint Authors
Source
Discrete Dynamics in Nature and Society
Issue
Vol. 2018, Issue 2018 (31 Dec. 2018), pp.1-17, 17 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2018-03-06
Country of Publication
Egypt
No. of Pages
17
Main Subjects
Abstract EN
We study how to design an optimal contract which provides incentives for agent to put forth the desired effort in a continuous time dynamic moral hazard model with linear marginal productivity.
Using exponential utility and linear production, three different information structures, full information, hidden actions and hidden savings, are considered in the principal-agent model.
Applying the stochastic maximum principle, we solve the model explicitly, where the agent’s optimization problem becomes the principal’s problem of choosing an optimal contract.
The explicit solutions to our model allow us to analyze the distortion of allocations.
The main effect of hidden actions is a reduction of effort, but the a smaller effect is on the consumption allocation.
In the hidden saving case, the consumption distortion almost vanishes but the effort distortion is expanded.
In our setting, the agent’s optimal effort is also reduced with the decline of marginal productivity.
American Psychological Association (APA)
Liu, Bing& Yin, Zheng& Lai, Chong. 2018. A Solvable Dynamic Principal-Agent Model with Linear Marginal Productivity. Discrete Dynamics in Nature and Society،Vol. 2018, no. 2018, pp.1-17.
https://search.emarefa.net/detail/BIM-1152683
Modern Language Association (MLA)
Liu, Bing…[et al.]. A Solvable Dynamic Principal-Agent Model with Linear Marginal Productivity. Discrete Dynamics in Nature and Society No. 2018 (2018), pp.1-17.
https://search.emarefa.net/detail/BIM-1152683
American Medical Association (AMA)
Liu, Bing& Yin, Zheng& Lai, Chong. A Solvable Dynamic Principal-Agent Model with Linear Marginal Productivity. Discrete Dynamics in Nature and Society. 2018. Vol. 2018, no. 2018, pp.1-17.
https://search.emarefa.net/detail/BIM-1152683
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1152683