Barlo, Mehmet and Ozdogan, Ayca (2011): Optimality of linearity with collusion and renegotiation.
Download (229kB) | Preview
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|
|Original Title:||Optimality of linearity with collusion and renegotiation|
|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
|Depositing User:||Mehmet Barlo|
|Date Deposited:||23. Dec 2011 16:06|
|Last Modified:||25. Aug 2015 11:21|
Barlo, M., and A. Ozdogan (2008): Teamwork beats collusion, Work in progress.
Bone, J. (1998): Risk-Sharing CARA individuals are collectively EU, Economics Letters, 58, 311-317
Cvitanic, J., X. Wan, and J. Zhang (2005): Continuous-Time Principal-Agent Problems with Hidden Action: The Weak Formulation, working paper, California Technology of Institute.
Grossman, S., and O. Hart (1983): An Analysis of the Principal-Agent Problem, Econometrica, 51, 7-45.
Hellwig, M., and K. M. Schmidt (2002): Discrete-Time Approximations of the Holmstrom-Milgrom Brownian-Motion Model of Intertemporal Incentive Provision, Econometrica, 70(6), 2225-2264.
Holmstrom, B. (1982): Moral Hazard in Teams, Bell Journal of Economics, 13, 324-340.
Holmstrom, B., and P. Milgrom (1987): Aggregation and Linearity in the Provision of Intertemporal Incentives, Econometrica, 55(2), 303-28.
Holmstrom, B., and P. Milgrom (1990): Regulating the trade among agents, Journal of Institutional and Theoretical Economics, 146, 85-105.
Itoh, H. (1993): Coalitions, Incentives and Risk Sharing, Journal of Economic Theory, 60, 410-427.
Jewitt, I. (1988): Justifying the First-order approach to principal-agent problems, Econometrica, 56, 1177-1190.
Koo, H. K., G. Shim, and J. Sung (2008): Optimal Multi-Agent Performance Measures for Team Contracts, Mathematical Finance, 18(4), 649-667.
Lafontaine, F. (1992): Agency Theory and Franchising: Some Empirical Results," Rand Journal of Economics, 23, 263-283.
Mirlees, J. (1974): Notes on Welfare Economics, Information and Uncertainty, in Essays on Economic Behavior Under Uncertainty, ed. by M. Balch, D. McFadden, and S. Y. Wu. North Holland Publishing Co., Amsterdam.
Mirrlees, J. A. (1975): The theory of moral hazard and unobservable behavior, Part I, Mimeo, Nuffield College, Oxford.
Rogerson, W. (1985): The First Order Approach to Principal-Agent Problem, Econometrica, 53, 1357-1368.
Sannikov, Y. (2008): A Continuous-Time Version of the Principal-Agent Problem, Review of Economic Studies, 75, 957-984.
Schattler, H., and J. Sung (1993): The Fisrt-Order Approach to the Continuous-Time Principal-Agent Problem with Exponential Utility, Journal of Economic Theory, 61, 331-371.
Schattler, H., and J. Sung (1997): On Optimal Sharing Rules in Discrete- and Continuous-Time Principal-Agent Problems with Exponential Utility, Journal of Economic Dynamics and Control, 21, 551-574.
Slade, M. E. (1996): Multitask Agency Contract Choice: An Empirical Exploration," International Economic Review, 37(2), 465-486.
Sung, J. (1995): Linearity with Project Selection and Controllable Diffusion Rate in Continuous-Time Principal-Agent Problems, Rand Journal of Economics, 26(4), 720-743.
Varian, H. R. (1990): Monitoring agents with other agents, Journal of Institutional and Theoretical Economics, 146, 153-174.
Williams, N. (2003): On Dynamic Principal-Agent Problems in Continuous-Time, working paper, Priceton University.