A solvable dynamic principal-agent model with linear marginal productivity
type: Item
instance of: scholarly article
title: A solvable dynamic principal-agent model with linear marginal productivity
zbMATH Open document ID: 1422.91435
DOI: 10.1155/2018/5282359
author: Xianqiang Yang
published in: Discrete Dynamics in Nature and Society
publication date: 2019-02-20T00:00:00Z
review text: Summary: We study how to design an optimal contract which provides incentives for agent to put forth the desired effort in a continuous time dynamic moral hazard model with linear marginal productivity. Using exponential utility and linear production, three different information structures, full information, hidden actions and hidden savings, are considered in the principal-agent model. Applying the stochastic maximum principle, we solve the model explicitly, where the agent's optimization problem becomes the principal's problem of choosing an optimal contract. The explicit solutions to our model allow us to analyze the distortion of allocations. The main effect of hidden actions is a reduction of effort, but the a smaller effect is on the consumption allocation. In the hidden saving case, the consumption distortion almost vanishes but the effort distortion is expanded. In our setting, the agent's optimal effort is also reduced with the decline of marginal productivity.
Mathematics Subject Classification ID: 91B40
Mathematics Subject Classification ID: 93E20
zbMATH DE Number: 7026613
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1155/2018/5282359
OpenAlex ID: W2793689814
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Wikidata QID: Q130188358
description: scientific article; zbMATH DE number 7026613