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Dynamic Costly State Verification

Listed author(s):
  • Cheng Wang

I study a model of dynamic risk sharing with costly state verification (CSV). In the model, a risk neutral agent enters an infinitely repeated relationship with a risk averse agent. In each period, the risk averse agent receives a random income which is observed only by himself, unless the risk neutral agent engages in costly monitoring. I provide a set of characterizations for the optimal contract, and I show that CSV has interesting effects on the long run distribution of the agents’ expected utilities. Copyright Springer-Verlag Berlin/Heidelberg 2005

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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2000-26.

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Handle: RePEc:cmu:gsiawp:395
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Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890

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  1. Cyril Monnet & Erwan Quintin, 2005. "Optimal contracts in a dynamic costly state verification model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(4), pages 867-885, November.
  2. Jeremy Greenwood & Juan M. Sanchez & Cheng Wang, 2010. "Financing Development: The Role of Information Costs," American Economic Review, American Economic Association, vol. 100(4), pages 1875-1891, September.
  3. Karine Gobert & Michel Poitevin, 2006. "Non-commitment and savings in dynamic risk-sharing contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(2), pages 357-372, 06.
  4. Ravikumar, B & Zhang, Yuzhe, 2010. "Optimal auditing in a dynamic model of tax compliance," MPRA Paper 22924, University Library of Munich, Germany.
  5. Antinolfi, Gaetano & Carli, Francesco, 2015. "Costly monitoring, dynamic incentives, and default," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 105-119.
  6. Zhang, Yuzhe & Ravikumar, B., 2012. "Optimal auditing and insurance in a dynamic model of tax compliance," Theoretical Economics, Econometric Society, vol. 7(2), May.
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