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Characterization of a Risk Sharing Contract with One-Sided Commitment

Zhang, Yuzhe (2012): Characterization of a Risk Sharing Contract with One-Sided Commitment. Published in: Journal of Economic Dynamics and Control (2013)

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Abstract

In this paper I provide a stopping-time-based solution to a long-term contracting problem between a risk-neutral principal and a risk-averse agent. The agent faces a stochastic income stream and cannot commit to the long-term contracting relationship. To compute the optimal contract, I also design an algorithm that is more efficient than value-function iteration.

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