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On Repeated Moral Hazard with Discounting

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  • Stephen E. Spear
  • Sanjay Srivastava

Abstract

In this paper, we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future. We show that there is a stationary representation of the optimal contract when the agent's conditional discounted expected utility is used as a state variable. This representation reduces the multi-period problem to a static variational problem which can be analyzed using standard variational techniques. This reduction is used to obtain several properties of the contract.

Suggested Citation

  • Stephen E. Spear & Sanjay Srivastava, 1987. "On Repeated Moral Hazard with Discounting," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(4), pages 599-617.
    • Handle: RePEc:oup:restud:v:54:y:1987:i:4:p:599-617.
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