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Adjustment of an Affine Contract with a Fixed-Point Iteration

Author

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  • M. Kitti

    (Helsinki School of Economics)

  • H. Ehtamo

    (Helsinki University of Technology)

Abstract

This paper studies a principal-agent game where the principal commits to an affine contract. When the one-shot game is repeated, the principal adjusts the contract according to the myopically behaving agent’s reactions. We derive convergence conditions for a fixed-point iteration as an adjustment scheme. The analysis is based on parameterizing the contract so that we obtain a degree zero homogeneous system of equations, where the nonlinear mapping satisfies Walras’ law.

Suggested Citation

  • M. Kitti & H. Ehtamo, 2009. "Adjustment of an Affine Contract with a Fixed-Point Iteration," Journal of Optimization Theory and Applications, Springer, vol. 140(3), pages 477-497, March.
    • Handle: RePEc:spr:joptap:v:140:y:2009:i:3:d:10.1007_s10957-008-9465-4
    DOI: 10.1007/s10957-008-9465-4
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    References listed on IDEAS

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    Cited by:

    1. Ehtamo, Harri & Berg, Kimmo & Kitti, Mitri, 2010. "An adjustment scheme for nonlinear pricing problem with two buyers," European Journal of Operational Research, Elsevier, vol. 201(1), pages 259-266, February.
    2. Kitti, Mitri, 2010. "Convergence of iterative tâtonnement without price normalization," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1077-1091, June.

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