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On Repeated Moral Hazard with Discounting

Listed author(s):
  • Stephen E. Spear
  • Sanjay Srivastava

In this paper, we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future. We show that there is a stationary representation of the optimal contract when the agent's conditional discounted expected utility is used as a state variable. This representation reduces the multi-period problem to a static variational problem which can be analyzed using standard variational techniques. This reduction is used to obtain several properties of the contract.

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File URL: http://hdl.handle.net/10.2307/2297484
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Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 54 (1987)
Issue (Month): 4 ()
Pages: 599-617

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Handle: RePEc:oup:restud:v:54:y:1987:i:4:p:599-617.
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  1. Recursive Macroeconomic Theory

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