Computing moral-hazard problems using the Dantzig-Wolfe decomposition algorithm
AbstractLinear programming is an important method for computing solutions to private information problems. The method is applicable for arbitrary specifications of the references and technology. Unfortunately, as the cardinality of underlying sets increases the programs quickly become too large to compute. This paper demonstrates that moral-hazard problems have a structure that allows them to be computed using the Dantzig-Wolfe decomposition algorithm. This algorithm breaks the linear program into subproblems, greatly increasing the size of problems that may be practically computed. Connections to dynamic programming are discussed. Two examples are computed. Role of lotteries is discussed.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 98-06.
Date of creation: 1998
Date of revision:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Manuel Santos & Jorge Aseff, .
"Stock Options and Managerial Optimal Contracts,"
2133304, Department of Economics, W. P. Carey School of Business, Arizona State University.
- Alexander Karaivanov, 2002. "Computing Moral Hazard Programs With Lotteries Using Matlab," Computational Economics 0201001, EconWPA.
- Edward S. Prescott, 1999. "A primer on moral-hazard models," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 47-78.
- Andreas Lehnert, 1998. "Asset pooling, credit rationing, and growth," Finance and Economics Discussion Series 1998-52, Board of Governors of the Federal Reserve System (U.S.).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (William Perkins).
If references are entirely missing, you can add them using this form.