A solvable continuous time dynamic principal-agent model

• 成果类型: Article
• 署名作者: Williams, Noah
• 署名单位: University of Wisconsin System; University of Wisconsin Madison
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2015.07.006
• 发表日期: 2015
• 页码: 989-1015
• 关键词: Dynamic contracts; moral hazard; private information

摘要

I study the provision of incentives in a continuous time dynamic moral hazard model with hidden actions and hidden states. I consider a principal agent model with linear production and exponential utility, whose explicit solution allows me to show how allocations are distorted for incentive reasons, and how access to hidden savings further alters allocations. I solve the model by applying a stochastic maximum principle, where the co-state variables from the agent's optimization problem become state variables for the principal's problem of choosing an optimal contract. I show that the main effect of moral hazard is a distortion on the effort margin, with a smaller effect on the intertemporal consumption allocation. Access to hidden savings shuts down the intertemporal distortions and increases the effort distortion. I also show how the optimal contracts can be implemented via a constant equity share, a constant flow payment, and a constant tax on savings. (C) 2015 Elsevier Inc. All rights reserved.