Dynamic contracting with persistent shocks

• 成果类型: Article
• 署名作者: Zhang, Yuzhe
• 署名单位: University of Iowa
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2008.08.004
• 发表日期: 2009
• 页码: 635-675
• 关键词: persistence; principal-agent problem; Stochastic control problems; Efficiency lines

摘要

In this paper, we develop continuous-time methods for solving dynamic principal-agent problems in which the agent's privately observed productivity shocks are persistent over time. We characterize the optimal contract as the solution to a system of ordinary differential equations and show that, under this contract, the agent's utility converges to its lower bound-immiserization occurs. Unlike under risk-neutrality, the wedge between the marginal rate of transformation and a low-productivity agent's marginal rate or substitution between consumption and leisure will not vanish permanently at her first high-productivity report; also, the wedge increases with the duration of a low-productivity report. We apply the methods to numerically solve the Mirrleesian dynamic taxation model, and find that the wedge is significantly larger than that in the independently and identically distributed (i.i.d.) shock case. (C) 2008 Elsevier Inc. All rights reserved.