Optimality of linearity with collusion and renegotiation
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 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.
Year of publication: |
2014
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Authors: | Barlo, Mehmet ; Özdog˜an, Ayça |
Published in: |
Mathematical Social Sciences. - Elsevier, ISSN 0165-4896. - Vol. 71.2014, C, p. 46-52
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Publisher: |
Elsevier |
Saved in:
Online Resource
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