Dynamic programming approach to principal-agent problems (Q1691442)
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| Language | Label | Description | Also known as |
|---|---|---|---|
| English | Dynamic programming approach to principal-agent problems |
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Dynamic programming approach to principal-agent problems (English)
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16 January 2018
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The main contribution is in providing a systematic method to solve the principal-agent problem with a lump-sum payment on a finite horizon. It includes the case when the agent can also control the volatility of the output process, and not just the drift. The main approaches consist of: 1) finding the contract that is optimal among those for which the agent's value process allows a dynamic programming representation; and 2) showing that the optimization over this restricted family of contracts represents no loss of generality. The proofs are based on backward SDEs with non-Markovian stochastic control (and on extensions to the second-order case).
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stochastic control of non-Markovian systems
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HJB equations
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second-order backward SDEs
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principal-agent problem
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contract theory
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