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Dynamic costly state verification

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  • Cheng Wang

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    Abstract

    I study a model of dynamic risk sharing with costly state verification (CSV). In the model, a risk neutral agent enters an infinitely repeated relationship with a risk averse agent. In each period, the risk averse agent receives a random income which is observed only by himself, unless the risk neutral agent engages in costly monitoring. I provide a set of characterizations for the optimal contract, and I show that CSV has interesting effects on the long run distribution of the agents’ expected utilities. Copyright Springer-Verlag Berlin/Heidelberg 2005

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    File URL: http://hdl.handle.net/10.1007/s00199-004-0486-4
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    Bibliographic Info

    Article provided by Springer in its journal Economic Theory.

    Volume (Year): 25 (2005)
    Issue (Month): 4 (06)
    Pages: 887-916

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    Handle: RePEc:spr:joecth:v:25:y:2005:i:4:p:887-916

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    Web page: http://link.springer.de/link/service/journals/00199/index.htm

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    Related research

    Keywords: Dynamic costly state verification;

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    Cited by:
    1. Ravikumar, B. & Zhang, Yuzhe, 2010. "Optimal Auditing in a Dynamic Model of Tax Compliance," MPRA Paper 23218, University Library of Munich, Germany.
    2. Jeremy Greenwood & Juan M. Sanchez & Cheng Wang, 2010. "Financing Development: The Role of Information Costs," American Economic Review, American Economic Association, vol. 100(4), pages 1875-91, September.
    3. Cole, Harold L., 2013. "Self-enforcing stochastic monitoring and the separation of claims," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 632-649.
    4. Langberg, Nisan, 2008. "Optimal financing for growth firms," Journal of Financial Intermediation, Elsevier, vol. 17(3), pages 379-406, July.
    5. Hisashi Nakamura, 2012. "A Continuous-Time Analysis of Optimal Restructuring of Contracts with Costly Information Disclosure," Asia-Pacific Financial Markets, Springer, vol. 19(2), pages 119-147, May.
    6. Edward Simpson Prescott, 2004. "Auditing And Bank Capital Regulation," Working Papers wp2004_0412, CEMFI.
    7. Armenter, Roc & Mertens, Thomas M., 2013. "Fraud deterrence in dynamic Mirrleesian economies," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 139-151.

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