Repeated moral hazard and recursive Lagrangeans

Antonio Mele

MPRA Paper from University Library of Munich, Germany

Abstract: This paper shows how to solve dynamic agency models by extending recursive Lagrangean techniques a la Marcet and Marimon (2009) to problems with hidden actions. The method has many advantages with respect to promised utilities approach (Abreu, Pearce and Stacchetti (1990)): it is a significant improvement in terms of simplicity, tractability and computational speed. Solutions can be easily computed for hidden actions models with several endogenous state variables and several agents, while the promised utilities approach becomes extremely difficult and computationally intensive even with just one state variable or two agents. Several numerical examples illustrate how this methodology outperforms the standard approach.

Keywords: repeated moral hazard; recursive Lagrangean; collocation method (search for similar items in EconPapers)
JEL-codes: C61 C63 D82 D86 (search for similar items in EconPapers)
Date: 2010-03-29
New Economics Papers: this item is included in nep-cmp and nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Repeated moral hazard and recursive Lagrangeans (2014)
Working Paper: Repeated moral hazard and recursive Lagrangeans (2011)
Working Paper: Repeated Moral Hazard and Recursive Lagrangeans (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:21741

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