A dynamic pricipal-agent problem as a feedback Stackelberg differentioal game

Ngo Long and Gerhard Sorger

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: We consider situations in which a principal tries to induce an agent to spend effort on accumulating a state variable that affects the well-being of both parties. The only incentive mechanism that the principal can use is a state-dependent transfer of her own utility to the agent. Formally, the model is a Stackelberg differential game in which the players use feedback strategies. Whereas in general Stackelberg differential games with feedback strategy spaces the leader's optimization problem has non-standard features that make it extremely hard to solve, in the present case this problem can be rewritten as a standard optimal control problem. Two examples are used to illustrate our approach.

JEL-codes: C61 C73 D82 (search for similar items in EconPapers)
Date: 2009-04
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Journal Article: A dynamic principal-agent problem as a feedback Stackelberg differential game (2010)
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