A Continuous-Time Version of the Principal-Agent

Yuliy Sannikov ()
Additional contact information
Yuliy Sannikov: Department of Economics University of California, Berkeley

No 188, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: This paper describes a new continuous-time principal-agent model, in which the output is a diffusion process with drift determined by the agent’s unobserved effort. The risk-averse agent receives consumption continuously. An optimal contract, based on the agent’s continuation value as a state variable, is computed by a new method using a differential equation. During employment the output path stochastically drives the agent’s continuation value until it hits a low retirement point or a high retirement point. Unlike in related discrete-time models, one can use calculus to derive comparative statics and evaluate inefficiency

Keywords: Principal-agent model; hidden action; optimal contract; Brownian motion (search for similar items in EconPapers)
JEL-codes: C63 D82 E2 (search for similar items in EconPapers)
Date: 2005-11-11
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.econ.berkeley.edu/~sannikov/agency.pdf main text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.econ.berkeley.edu/~sannikov/agency.pdf [301 Moved Permanently]--> https://econ.berkeley.edu/~sannikov/agency.pdf)
http://repec.org/sce2005/up.20676.1106967339.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf5:188

Access Statistics for this paper

More papers in Computing in Economics and Finance 2005 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().