Optimality of linearity with collusion and renegotiation

Mehmet Barlo () and Ayca Ozdogan

MPRA Paper from University Library of Munich, Germany

Abstract: This study analyzes a continuous-time N-agent Brownian hidden-action model with exponential utilities, in which agents' actions jointly determine the mean and the variance of the outcome process. In order to give a theoretical justi¯cation for the use of linear contracts, as in Holmstrom and Milgrom (1987), we consider a variant of its generalization given by Sung (1995), into which collusion and renegotiation possibilities among agents are incorporated. In this model, we prove that there exists a linear and stationary optimal compensation scheme which is also immune to collusion and renegotiation.

Keywords: Principal-agent problems; moral hazard; linear contracts; continuous-time model; Brownian motion martingale method; collusion,; renegotiation; team (search for similar items in EconPapers)
JEL-codes: C61 C73 D82 D86 (search for similar items in EconPapers)
Date: 2011-12-13
New Economics Papers: this item is included in nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Optimality of linearity with collusion and renegotiation (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:35548

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