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)

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Limited commitment, Risk sharing, Stopping time, Value-function iteration
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling

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