Discrete-Time Approximations of the Holmstrom-Milgrom Brownian-Motion Model of Intertemporal Incentive Provision
This paper studies the relation between discrete-time and continuous-time principal-agent models. We derive the continuous-time model as a limit of discrete-time models with ever shorter periods and show that optimal incentive schemes in the discrete-time models approximate the optimal incentive scheme in the continuous model, which is "linear in accounts". Under the additional assumption that the principal observes only cumulative total profits at the end and the agent can destroy profits unnoticed, an incentive scheme that is "linear in total profits" is shown to be approximately optimal in the discrete-time model when the length of the period is small. Copyright The Econometric Society 2002.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 70 (2002)
Issue (Month): 6 (November)
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/
More information through EDIRC
|Order Information:|| Web: https://www.econometricsociety.org/publications/econometrica/access/ordering-back-issues Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hellwig, Martin F., 1996. "Sequential decisions under uncertainty and the maximum theorem," Journal of Mathematical Economics, Elsevier, vol. 25(4), pages 443-464.
- Bengt Holmstrom & Paul R. Milgrom, 1985.
"Aggregation and Linearity in the Provision of Intertemporal Incentives,"
Cowles Foundation Discussion Papers
742, Cowles Foundation for Research in Economics, Yale University.
- Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
- J. A. Mirrlees, 1999. "The Theory of Moral Hazard and Unobservable Behaviour: Part I," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 3-21.
- Itoh, Hideshi, 1992. "Cooperation in Hierarchical Organizations: An Incentive Perspective," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 321-345, April.
- Hellwig, Martin F. & Schmidt, Klaus M., 2001.
"Discrete-Time Approximations of the Holmström-Milgrom Brownian-Motion Model of Intertemporal Incentive Provision,"
Discussion Papers in Economics
22, University of Munich, Department of Economics.
- Martin F. Hellwig & Klaus M. Schmidt, 2002. "Discrete-Time Approximations of the Holmstrom-Milgrom Brownian-Motion Model of Intertemporal Incentive Provision," Econometrica, Econometric Society, vol. 70(6), pages 2225-2264, November.
- Hellwig, Martin F. & Schmidt, Klaus M., 2002. "Discrete-time approximations of the Holmström-Milgrom brownian-motion model of intertemporal incentive provision," Munich Reprints in Economics 19425, University of Munich, Department of Economics.
- Hellwig, Martin & Schmidt, Klaus M., 2001. "Discrete-Time Approximations of the Holmström-Milgrom Brownian-Motion Model of Intertemporal Incentive Provision," Sonderforschungsbereich 504 Publications 01-52, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Hellwig, Martin & Schmidt, Klaus M., 1998. "Discrete-time approximations of the Holmström-Milgrom Brownian-motion model of intertemporal incentive provision," Papers 98-06, Sonderforschungsbreich 504.
- Hellwig, Martin & Schmidt, Klaus M., 1998. "Discrete-Time Approximations of the Holmström-Milgrom Brownian-Motion, Model of Intertemporal Incentive Provision," Sonderforschungsbereich 504 Publications 98-06, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Sanford J Grossman & Oliver D Hart, 2001.
"An Analysis of the Principal-Agent Problem,"
Levine's Working Paper Archive
391749000000000339, David K. Levine.
- Sanford Grossman & Oliver Hart, "undated". "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers 15-80, Wharton School Rodney L. White Center for Financial Research.
- Jaeyoung Sung, 1995. "Linearity with Project Selection and Controllable Diffusion Rate in Continuous-Time Principal-Agent Problems," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 720-743, Winter.
When requesting a correction, please mention this item's handle: RePEc:ecm:emetrp:v:70:y:2002:i:6:p:2225-2264. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.