Barlo, Mehmet and Ozdogan, Ayca
(2011):
*Optimality of linearity with collusion and renegotiation.*

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## Abstract

This study analyzes a continuous-time N-agent Brownian hidden-action model with exponential utilities, in which agents' actions jointly determine the mean and the variance of the outcome process. In order to give a theoretical justi¯cation for the use of linear contracts, as in Holmstrom and Milgrom (1987), we consider a variant of its generalization given by Sung (1995), into which collusion and renegotiation possibilities among agents are incorporated. In this model, we prove that there exists a linear and stationary optimal compensation scheme which is also immune to collusion and renegotiation.

Item Type: | MPRA Paper |
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Original Title: | Optimality of linearity with collusion and renegotiation |

Language: | English |

Keywords: | Principal-agent problems; moral hazard; linear contracts; continuous-time model; Brownian motion martingale method; collusion,; renegotiation; team |

Subjects: | D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games ; Evolutionary Games ; Repeated Games |

Item ID: | 35548 |

Depositing User: | Mehmet Barlo |

Date Deposited: | 23 Dec 2011 16:06 |

Last Modified: | 02 Oct 2019 05:44 |

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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/35548 |