EconPapers    
Economics at your fingertips  
 

Moral Hazard Under Ambiguity

Thibaut Mastrolia () and Dylan Possamaï ()
Additional contact information
Thibaut Mastrolia: École Polytechnique
Dylan Possamaï: Columbia University

Journal of Optimization Theory and Applications, 2018, vol. 179, issue 2, No 5, 452-500

Abstract: Abstract In this paper, we extend the classical Holmström and Milgrom contracting problem, by adding uncertainty on the volatility of the output for both the Agent and the Principal. We study more precisely the impact of the “Nature” playing against the Agent and the Principal, by choosing the worst possible volatility of the output. We solve the first-best and the second-best problems in this framework, and we show that optimal contracts are in a class of contracts linear with respect to the output and its quadratic variation. We also present a general modus operandi to apply our method.

Keywords: Risk sharing; Moral hazard; Principal–Agent; Second-order BSDEs; Volatility uncertainty; Hamilton–Jacobi–Bellman–Isaacs PDEs; 91B40; 93E20; C61; C73; D82; J33; M52 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s10957-018-1230-8 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:joptap:v:179:y:2018:i:2:d:10.1007_s10957-018-1230-8

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10957/PS2

Access Statistics for this article

Journal of Optimization Theory and Applications is currently edited by Franco Giannessi and David G. Hull

More articles in Journal of Optimization Theory and Applications from Springer
Bibliographic data for series maintained by Sonal Shukla ().

 
Page updated 2019-04-09
Handle: RePEc:spr:joptap:v:179:y:2018:i:2:d:10.1007_s10957-018-1230-8