Mathematical Theory for General Moral Hazard Problems

Jakša Cvitanić and Jianfeng Zhang
Additional contact information
Jakša Cvitanić: California Institute of Technology
Jianfeng Zhang: University of Southern California

Chapter Chapter 5 in Contract Theory in Continuous-Time Models, 2013, pp 47-84 from Springer

Abstract: Abstract This chapter describes a general theory of optimal contracting with hidden or non-contractable actions in continuous-time, developed by applying the stochastic maximum principle. The main modeling difference with respect to the full information case is that we will now assume that the agent controls the distribution of the output process with his effort. Mathematically, this is modeled using the so-called “weak formulation” and “weak solutions” of the underlying SDEs. Necessary and sufficient conditions are derived in terms of the so-called adjoint processes and corresponding Forward-Backward SDEs. These processes typically include the output process, the agent’s expected utility process, the principal’s expected utility process, and the ratio of marginal utilities process.

Keywords: Participation Constraint; Moral Hazard Problem; Stochastic Maximum Principle; Individual Rationality Constraint; Recursive Utility (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:sprfcp:978-3-642-14200-0_5

Ordering information: This item can be ordered from
http://www.springer.com/9783642142000

DOI: 10.1007/978-3-642-14200-0_5

Access Statistics for this chapter

More chapters in Springer Finance from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().