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Repeated Moral Hazard and Recursive Lagrangeans

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  • Antonio Mele

    (Universitat Pompeu Fabra)

Abstract

I solve a repeated moral hazard model with a fast and flexible numerical algorithm. Instead of applying the traditional Abreu, Pierce and Stacchetti (1990), I extend the Lagrangean techniques developed in Marcet and Marimon (1998) to the principal-agent framework. A numerical procedure is proposed, that is much faster than the traditional algorithms based on the promised utilities approach, and that can easily deal with large state spaces. Given the computational speed, the algorithm is especially suitable for applications with many state variables and for calibration purposes.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 482.

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Date of creation: 2008
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Handle: RePEc:red:sed008:482

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Cited by:
  1. Marcet, A. & Marimon, R., 1998. "Recursive Contracts," Economics Working Papers, European University Institute eco98/37, European University Institute.
  2. Matthias Messner & Nicola Pavoni & Sleet Christopher, 2011. "On the Dual Approach to Recursive Optimization," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 2012-E8, Carnegie Mellon University, Tepper School of Business.
  3. Charles Brendon, 2011. "Applying perturbation analysis to dynamic optimal tax problems," Economics Series Working Papers, University of Oxford, Department of Economics 581, University of Oxford, Department of Economics.
  4. Emilio Espino, 2012. "Investment and Insurance in an Economic Union," 2012 Meeting Papers, Society for Economic Dynamics 1176, Society for Economic Dynamics.
  5. Matthias Messner & Nicola Pavoni & Christopher Sleet, 2012. "Contractive Dual Methods for Incentive Problems," Working Papers, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University 466, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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