A dynamic principal-agent problem as a feedback Stackelberg differential game

Ngo Long and Gerhard Sorger

Central European Journal of Operations Research, 2010, vol. 18, issue 4, 509 pages

Abstract: We consider situations in which a principal tries to induce an agent to spend effort on accumulating a state variable that affects the well-being of both parties. The only incentive mechanism that the principal can use is a state-dependent transfer of her own utility to the agent. Formally, the model is a Stackelberg differential game in which the players use feedback strategies. Whereas in general Stackelberg differential games with feedback strategy spaces the leader’s optimization problem has non-standard features that make it extremely hard to solve, in the present case this problem can be rewritten as a standard optimal control problem. A linear-quadratic example is used to illustrate our approach. Copyright Springer-Verlag 2010

Keywords: Differential game; Principal-agent model; Feedback strategies; Stackelberg equilibrium; C61; C73; D82 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (8)

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Working Paper: A dynamic pricipal-agent problem as a feedback Stackelberg differentioal game (2009)
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DOI: 10.1007/s10100-010-0172-5

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