What Can We Learn From Simulating a Standard Agency Model?

No 98, Computing in Economics and Finance 2001 from Society for Computational Economics

Abstract: For typical parametrizations of the standard Holmstrom (1979) agency model, this paper demonstrates that the set of first-order conditions characterizing the optimal contract can be reduced to a single equation. A problem of investment financing under moral hazard is used to illustrate the reduced-form equation's usefulness in quantitative applications. When the agent has CARA preferences over consumption, it is shown that any exogenous limit on the penalties for low output is always binding.

Keywords: Moral Hazard; Numerical Analysis; Reduced-Form Equation; Limited Liability. (search for similar items in EconPapers)
JEL-codes: D82 C50 C61 (search for similar items in EconPapers)
Date: 2001-04-01
View citations in EconPapers

Forthcoming, Economics Letters, 73 (2), pp. 136-147, November 2001

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: What can we learn from simulating a standard agency model? (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Computing in Economics and Finance 2001 from Society for Computational Economics
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().