Optimality of linearity with collusion and renegotiation

Barlo, Mehmet and Özdoğan, Ayça (2011) Optimality of linearity with collusion and renegotiation. [Working Paper / Technical Report] Sabanci University ID:SU_FASS_2011/0008

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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 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
Divisions: Faculty of Arts and Social Sciences > Academic programs > Economics
Faculty of Arts and Social Sciences
Depositing User: Mehmet Barlo
Date Deposited: 23 Jan 2012 10:25
Last Modified: 26 Apr 2022 10:49
URI: https://research.sabanciuniv.edu/id/eprint/18337

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