A dual approach to agency problems

Chang Koo Chi and Kyoung Jin Choi

Journal of Mathematical Economics, 2023, vol. 109, issue C

Abstract: This paper presents a dual approach to the standard model of moral hazard. We formulate the dual of the principal–agent problem under the assumption that the incentive constraint can be replaced by a local constraint (the first-order approach), to examine whether the relaxed agency problem yields a candidate solution. The dual formulation generates a convex conjugate, 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 agency problem. We derive novel and more tractable conditions for existence and uniqueness of a solution to the problem with the dual elements. Furthermore, the approach to the dual problem provides illuminating insights into the previous nonexistence results.

Keywords: Existence; Moral hazard; Principal–agent models; Lagrange duality (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304406823001027
Full text for ScienceDirect subscribers only

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:eee:mateco:v:109:y:2023:i:c:s0304406823001027

DOI: 10.1016/j.jmateco.2023.102909

Access Statistics for this article

Journal of Mathematical Economics is currently edited by Atsushi (A.) Kajii

More articles in Journal of Mathematical Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().