Dynamic costs and moral hazard: A duality-based approach

• 成果类型: Article
• 署名作者: Arie, Guy
• 署名单位: University of Rochester
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2016.08.002
• 发表日期: 2016
• 页码: 1-50
• 关键词: Dynamic moral hazard; Nonlinear incentives; private information; dynamic mechanism design; Duality

摘要

The marginal cost of effort often increases as effort is exerted. In a dynamic moral hazard setting, dynamically increasing costs create information asymmetry. This paper characterizes the optimal contract and helps explain the popular yet thus far puzzling use of non-linear incentives, for example, in sales-force compensation. The result is obtained by complementing the standard dynamic program with a novel dynamic dual formulation. The dual program is monotonic and sub-modular, providing stronger results, including a proof for the sufficiency of one-shot deviations. (C) 2016 Elsevier Inc. All rights reserved.