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Existence of Optimal Contracts for Principal-Agent Problem with Drift Control and Quadratic Effort Cost

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  • Xinfu Chen
  • Shuaijie Qian
  • Guan Qiao

Abstract

The existence of optimal contracts of the principal-agent problem is a long-standing problem. According to the general framework in Cvitani\'c et al. [2], this existence can be derived from the existence of a classical solution to a degenerated fully nonlinear parabolic partial differential equation problem. In this work we consider the simple case with drift control and quadratic cost function, then prove the existence of classical solution to that PDE.

Suggested Citation

  • Xinfu Chen & Shuaijie Qian & Guan Qiao, 2025. "Existence of Optimal Contracts for Principal-Agent Problem with Drift Control and Quadratic Effort Cost," Papers 2503.08503, arXiv.org, revised Mar 2025.
    • Handle: RePEc:arx:papers:2503.08503
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    References listed on IDEAS

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    1. Jakša Cvitanić & Dylan Possamaï & Nizar Touzi, 2018. "Dynamic programming approach to principal–agent problems," Finance and Stochastics, Springer, vol. 22(1), pages 1-37, January.
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