Barlo, Mehmet and Özdoğan, Ayça (2013) Optimality of linearity with collusion and renegotiation. [Working Paper / Technical Report] Sabanci University ID:SU_FASS_2011/0008
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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 |
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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: | 11 Jan 2014 10:51 |
Last Modified: | 26 Apr 2022 10:51 |
URI: | https://research.sabanciuniv.edu/id/eprint/23535 |
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Optimality of linearity with collusion and renegotiation. (deposited 23 Jan 2012 10:25)
- Optimality of linearity with collusion and renegotiation. (deposited 11 Jan 2014 10:51) [Currently Displayed]