Dynamic Contracting with Many Agents

Bruno Biais (), Hans Gersbach, Jean Rochet, Ernst-Ludwig von Thadden and Stéphane Villeneuve
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Bruno Biais: HEC Paris
Stéphane Villeneuve: University of Toulouse 1

No 1516, HEC Research Papers Series from HEC Paris

Abstract: This paper analyzes dynamic capital allocation and risk sharing between a principal and many agents, who privately observe their output. The state variables of the mechanism design problem are aggregate capital and the distribution of continuation utilities across agents. This gives rise to a Bellman equation in an infinite dimensional space, which we solve with mean-field techniques. We fully characterize the optimal mechanism and show that the level of risk agents must be exposed to for incentive reasons is decreasing in their initial reservation utility. We extend classical welfare theorems by showing that any incentive-constrained optimal allocation can be implemented as an equilibrium allocation, with appropriate transfers and wealth taxation by the principal.

Keywords: Dynamic contract theory; mechanism design; large economies; allocative efficiency; incentive-compatibility; mean-field games; implementation (search for similar items in EconPapers)
JEL-codes: C61 D82 D86 D92 E22 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2024-04-11
New Economics Papers: this item is included in nep-des, nep-gth, nep-mic and nep-upt
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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4769204 Full text (text/html)

Related works:
Working Paper: Dynamic Contracting with Many Agents (2024)
Working Paper: Dynamic Contracting with Many Agents (2024)
Working Paper: Dynamic Contracting with Many Agents (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1516

DOI: 10.2139/ssrn.4769204

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