Renegotiation and dynamic inconsistency: Contracting with non-exponential discounting

• 成果类型: Article
• 署名作者: Cetemen, Doruk; Feng, Felix Zhiyu; Urgun, Can
• 署名单位: City St Georges, University of London; University of Washington; University of Washington Seattle; Princeton University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2023.105606
• 发表日期: 2023
• 关键词: Continuous -time contracting; dynamic inconsistency; RENEGOTIATION; Extended HJB system; Non -atomic; games

摘要

This paper studies a continuous-time, finite-horizon contracting problem with renegotiation and dynamic inconsistency arising from non-exponential discounting. The problem is formulated as a dynamic game played among the agent, the principal and their respective future selves, each with their own discount function. We identify the principal optimal renegotiation-proof contract as a Markov perfect equilibrium (MPE) of the game, prove that such an MPE exists, and characterize the optimal contract via an extended Hamilton-Jacobi-Bellman system. We solve the optimal contract in closed-form when discounting is a function of the time-difference only and demonstrate the applicability of the results in several different settings.(c) 2023 Elsevier Inc. All rights reserved.