A recursive formulation for repeated agency with history dependence
The paper deals with the problem of designing incentive mechanisms in dynamics environments where privately observed variables are linked over time, or where common knowledge of preferences over continuation contracts is violated. More specifically, starting from the Green's privately observed endowment model, the authors derive recursive methods to handle the aforementioned dynamic environments; an extension of agency theory to more realistic environments. Moreover, they show that incentive compatible contracts are implemented recursively with a threat keeping constraint in addition to the usual temporary incentive compatibility and promise keeping constraints.
scientific article; zbMATH DE number 1484859