Optimality of linearity with collusion and renegotiation Report as inadecuate




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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 -

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: TheoryD - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism DesignC - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic AnalysisC - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games ; Evolutionary Games ; Repeated Games-





Author: Barlo, Mehmet

Source: https://mpra.ub.uni-muenchen.de/35548/







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