A theory of dynamic contracting with financial constraints

• 成果类型: Article
• 署名作者: Krasikov, Ilia; Lamba, Rohit
• 署名单位: HSE University (National Research University Higher School of Economics); Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2021.105196
• 发表日期: 2021
• 关键词: Dynamic mechanism design; financial constraints; asymmetric information

摘要

Financial constraints preclude many surplus producing economic transactions, and inhibit the growth of many others. This paper models financial constraints as the interaction of two forces: the agent has persistent private information and is strapped for cash. The wedge between the optimal and efficient allocation, termed distortion, increases over time with each successive bad shock and decreases with each good shock. At any point in the contract, an endogenous number of good shocks are required for the principal to provide some liquidity and then eventually for the contract to become efficient. Efficiency is reached almost surely. The average rate at which contract becomes efficient is decreasing in persistence of shocks; in particular, the iid model predicts a quick dissolution of financial constraints. This speaks to the relevance of modeling persistence in dynamic models of agency. The problem is solved recursively, and building on the literature, a technical tool of finding the minimal subset of the recursive domain that houses the optimal contract is further developed. (C) 2021 Elsevier Inc. All rights reserved.