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Repeated moral hazard and recursive Lagrangeans

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  • Mele, Antonio

Abstract

This paper shows how to solve dynamic agency models by extending recursive Lagrangean techniques à laMarcet and Marimon (2011) to problems with hidden actions. The method has many advantages with respect to the promised utilities approach (Abreu et al., 1990): it is a significant improvement in terms of simplicity, tractability and computational speed. Solutions can be easily computed for hidden actions models with several endogenous state variables and several agents, while the promised utilities approach becomes extremely difficult and computationally intensive even with just one state variable or two agents.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 42 (2014)
Issue (Month): C ()
Pages: 69-85

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Handle: RePEc:eee:dyncon:v:42:y:2014:i:c:p:69-85

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Repeated moral hazard; Recursive Lagrangean; Computational methods; Collocation;

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Citations

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Cited by:
  1. Matthias Messner & Nicola Pavoni & Sleet Christopher, 2011. "On the Dual Approach to Recursive Optimization," GSIA Working Papers 2012-E8, Carnegie Mellon University, Tepper School of Business.
  2. Matthias Messner & Nicola Pavoni & Christopher Sleet, . "Contractive Dual Methods for Incentive Problems," GSIA Working Papers 2012-E26, Carnegie Mellon University, Tepper School of Business.
  3. Marcet, A. & Marimon, R., 1998. "Recursive Contracts," Economics Working Papers eco98/37, European University Institute.
  4. Charles Brendon, 2011. "Applying perturbation analysis to dynamic optimal tax problems," Economics Series Working Papers 581, University of Oxford, Department of Economics.
  5. Emilio Espino, 2012. "Investment and Insurance in an Economic Union," 2012 Meeting Papers 1176, Society for Economic Dynamics.

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