Adjustment of an Affine Contract with a Fixed-Point Iteration

M. Kitti () and H. Ehtamo ()
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M. Kitti: Helsinki School of Economics
H. Ehtamo: Helsinki University of Technology

Journal of Optimization Theory and Applications, 2009, vol. 140, issue 3, No 7, 477-497

Abstract: Abstract This paper studies a principal-agent game where the principal commits to an affine contract. When the one-shot game is repeated, the principal adjusts the contract according to the myopically behaving agent’s reactions. We derive convergence conditions for a fixed-point iteration as an adjustment scheme. The analysis is based on parameterizing the contract so that we obtain a degree zero homogeneous system of equations, where the nonlinear mapping satisfies Walras’ law.

Keywords: Principal-agent problems; Contracts; Fixed-point iteration; Convergence (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10957-008-9465-4

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