On the first-order approach in principal agent models with hidden borrowing and lending

• 成果类型: Article
• 署名作者: Abraham, Arpad; Koehne, Sebastian; Pavoni, Nicola
• 署名单位: Stockholm University; European University Institute; Bocconi University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2011.03.002
• 发表日期: 2011
• 页码: 1331-1361
• 关键词: Moral hazard; Hidden savings; first-order approach; Log-convexity

摘要

We provide sufficient conditions for the validity of the first-order approach for two-period dynamic moral hazard problems where the agent can save and borrow secretly. The first-order approach is valid if the following conditions hold: (i) the agent has non-increasing absolute risk aversion utility (NIARA), (ii) the output technology has monotone likelihood ratios (MLR), and (iii) the distribution function of output is log-convex in effort (LCDF). Moreover, under these three conditions, the optimal contract is monotone in output. We also investigate a few possibilities of relaxing these requirements. (C) 2011 Elsevier Inc. All rights reserved.