A DUAL APPROACH TO AGENCY PROBLEMS: EXISTENCE

Chang Koo Chi and Kyoung Jin Choi
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Chang Koo Chi: Yonsei Univ
Kyoung Jin Choi: University of Calgary Haskayne School of Business

No 2022rwp-197, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: This paper presents a dual approach to the standard agency model. We formulate the dual problem corresponding to the principal-agent problem under the assumption that the firstorder approach (FOA) is valid. This dual formulation generates a convex conjugate of a distinctive form, which transforms the agent’s utility from compensation into a dual functional. The dual problem features a simple convex structure, which enables us to perform a comprehensive analysis for the primal problem. We derive novel and more tractable conditions for existence and uniqueness of an optimal FOA contract in terms of the functional. Furthermore, the dual approach provides us with illuminating insights into the previous nonexistence results.

Keywords: Existence; moral hazard; principal-agent models; Lagrange duality (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Pages: 29pages
Date: 2022-06
New Economics Papers: this item is included in nep-mic and nep-upt
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Citations: View citations in EconPapers (1)

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