Discrete-Time Formulation I

Jaeyoung Sung
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Jaeyoung Sung: Ajou University

Chapter Chapter 3 in Contract Theory: Discrete- and Continuous-Time Models, 2023, pp 29-40 from Springer

Abstract: Abstract We study basic factors affecting the first- and second-best solutions by using simple binomial contracting models. In particular, we learn how first- and second-best solutions are affected by risk aversion of the two parties, and by such constraints as participation, incentive compatibility, and limited liability. We also learn that the principal expectedly pays the risk-averse agent in the second best more than she does in the first best.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-99-5487-2_3

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DOI: 10.1007/978-981-99-5487-2_3

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