Dynamic Costly State Verification
AbstractI 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.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10832.
Date of creation: 01 Jan 2005
Date of revision:
Publication status: Published in Economic Theory 2005, vol. 25 no. 4, pp. 887-916
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Web page: http://www.econ.iastate.edu
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