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The Risk-Sharing problem under limited liability constraints in a single-period model

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  • Jessica Martin

    (INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - INSA - Institut National des Sciences Appliquées - UT - Université de Toulouse)

Abstract

This work provides analysis of a variant of the Risk-Sharing Principal-Agent problem in a single period setting with additional constant lower and upper bounds on the wage paid to the Agent. First the effect of the extra constraints on optimal contract existence is analyzed and leads to conditions on utilities under which an optimum may be attained. Solution characterization is then provided along with the derivation of a Borch rule for Limited Liability. Finally the CARA utility case is considered and a closed form optimal wage and action are obtained. This allows for analysis of the classical CARA utility and gaussian setting.

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  • Jessica Martin, 2020. "The Risk-Sharing problem under limited liability constraints in a single-period model," Working Papers hal-02566942, HAL.
    • Handle: RePEc:hal:wpaper:hal-02566942
    Note: View the original document on HAL open archive server: https://hal.science/hal-02566942
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    References listed on IDEAS

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