Discrete-Time Approximations of the Holmström-Milgrom Brownian-Motion, Model of Intertemporal Incentive Provision

Martin Hellwig and Klaus Schmidt ()

No 98-06, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: This paper studies the relation between multi-period discrete-time and continuous-time principal-agent models. We explicitly derive the continuous-time model as a limit of discrete-time models with ever shorter periods and show that the optimal incentive scheme in the continuous model, which is linear in accounts, can be approximated by a sequence of optimal incentive schemes in the discrete models. For a variant of the discrete-time model in which the principal observes only total profits at the end of the last period and where the agent can destroy profits unnoticed we show, that if the length of each period is sufficiently small, then an incentive scheme that is linear in total profits is approximately optimal.

Pages: 58 pages
Date: 1998-05-07
New Economics Papers: this item is included in nep-mic
Note: For helpful comments and discussions we are grateful to Darell Duffie, Oliver Hart, Bengt Holmström, Nobuhiro Kiyotaki, John Moore, Holger Müller, Sven Rady, and Jae Sung. We are also grateful for research support from the Schweizerischer Nationalfonds, the Deutsche Forschungsgemeinschaft, and the Taussig Chair at Harvard University.
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sfb504.uni-mannheim.de/publications/dp98-06.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.sfb504.uni-mannheim.de:80 (No such host is known. )

Related works:
Journal Article: Discrete-Time Approximations of the Holmstrom-Milgrom Brownian-Motion Model of Intertemporal Incentive Provision (2002)
Working Paper: Discrete-time approximations of the Holmström-Milgrom brownian-motion model of intertemporal incentive provision (2002)
Working Paper: Discrete-Time Approximations of the Holmström-Milgrom Brownian-Motion Model of Intertemporal Incentive Provision (2001)
Working Paper: Discrete-Time Approximations of the Holmström-Milgrom Brownian-Motion Model of Intertemporal Incentive Provision (2001)
Working Paper: Discrete-time approximations of the Holmström-Milgrom Brownian-motion model of intertemporal incentive provision (1998)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:xrs:sfbmaa:98-06

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim Contact information at EDIRC., Sonderforschungsbereich 504, University of Mannheim
Bibliographic data for series maintained by Carsten Schmidt ( this e-mail address is bad, please contact ).