Long-Sighted Principal and Myopic Agents

Gabrielle Demange and Guy Laroque

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Abstract: We consider a long-lived principal, who can accumulate capital, and faces a sequence of myopic agents. For instance, a farsighted manager floats the shares of his firm on a myopic stock market, or a social security institution must propose contracts that are acceptable by the current active population. In these circumstances, we study the shape of the investment decision, the dynamics of accumulation, and the long-run steady-state. In particular, we characterize situations where the short horizons of the agents have a dramatic effect and lead to the closure of the firm or the demise of the social security system.

Keywords: Incentive constraints; Myopia; Capital accumulation; Risk sharing (search for similar items in EconPapers)
Date: 1998-09
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Published in Journal of Mathematical Economics, 1998, 30 (2), pp.119-146

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Journal Article: Long-sighted principal and myopic agents (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00670909

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