Optimality of Linearity with Collusion and Renegotiation
AbstractThis study analyzes a continuous-time N-agent Brownian hidden-action model with exponential utilities, in which agents' actions jointly determine the mean and the variance of the outcome process. In order to give a theoretical justiÂ¯cation for the use of linear contracts, as in Holmstrom and Milgrom (1987), we consider a variant of its generalization given by Sung (1995), into which collusion and renegotiation possibilities among agents are incorporated. In this model, we prove that there exists a linear and stationary optimal compensation scheme which is also immune to collusion and renegotiation.
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Bibliographic InfoPaper provided by TOBB University of Economics and Technology, Department of Economics in its series Working Papers with number 1109.
Date of creation: Dec 2011
Date of revision:
Other versions of this item:
- Barlo, Mehmet & Ozdogan, Ayca, 2011. "Optimality of linearity with collusion and renegotiation," MPRA Paper 35548, University Library of Munich, Germany.
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
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