title   
  

Optimality of linearity with collusion and renegotiation

Barlo, Mehmet and Özdoğan, Ayça (2013) Optimality of linearity with collusion and renegotiation. [Working Paper / Technical Report] Sabanci University ID:SU_FASS_2011/0008

This is the latest version of this item.

[img]
Preview
PDF - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
301Kb

Abstract

This study analyzes a continuous-time N-agent Brownian moral hazard model with constant absolute risk aversion (CARA) utilities, in which agents' actions jointly determine the mean and the variance of the outcome process. In order to give a theoretical justification 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.

Item Type:Working Paper / Technical Report
Uncontrolled Keywords:Principal-agent problems, moral hazard, linear contracts, continuous time model, Brownian motion, martingale method, collusion, renegotiation, team
Subjects:H Social Sciences > HB Economic Theory > HB135-147 Mathematical economics. Quantitative methods
H Social Sciences > HB Economic Theory
ID Code:23535
Deposited By:Mehmet Barlo
Deposited On:11 Jan 2014 10:51
Last Modified:11 Jan 2014 10:51

Available Versions of this Item

Repository Staff Only: item control page