On Repeated Moral Hazard with Discounting

Stephen Spear () and Sanjay Srivastava

The Review of Economic Studies, 1987, vol. 54, issue 4, 599-617

Abstract: In this paper, we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future. We show that there is a stationary representation of the optimal contract when the agent's conditional discounted expected utility is used as a state variable. This representation reduces the multi-period problem to a static variational problem which can be analyzed using standard variational techniques. This reduction is used to obtain several properties of the contract.

Date: 1987
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:54:y:1987:i:4:p:599-617.

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