Agency Models With Frequent Actions

Tomasz Sadzik, Ennio Stacchetti

    Research output: Contribution to journalArticle

    Abstract

    The paper analyzes dynamic principal-agent models with short period lengths. The two main contributions are: (i) an analytic characterization of the values of optimal contracts in the limit as the period length goes to 0, and (ii) the construction of relatively simple (almost) optimal contracts for fixed period lengths. Our setting is flexible and includes the pure hidden action or pure hidden information models as special cases. We show how such details of the underlying information structure affect the optimal provision of incentives and the value of the contracts. The dependence is very tractable and we obtain sharp comparative statics results. The results are derived with a novel method that uses a quadratic approximation of the Pareto boundary of the equilibrium value set.

    Original languageEnglish (US)
    Pages (from-to)193-237
    Number of pages45
    JournalEconometrica
    Volume83
    Issue number1
    DOIs
    StatePublished - Jan 1 2015

    Fingerprint

    Agency model
    Optimal contract
    Comparative statics
    Incentives
    Principal-agent model
    Approximation
    Hidden action
    Information model
    Pareto
    Hidden information
    Information structure

    Keywords

    • Frequent actions
    • Imperfect monitoring
    • Principal-agent model
    • Quadratic approximation

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Sadzik, T., & Stacchetti, E. (2015). Agency Models With Frequent Actions. Econometrica, 83(1), 193-237. https://doi.org/10.3982/ECTA10656

    Agency Models With Frequent Actions. / Sadzik, Tomasz; Stacchetti, Ennio.

    In: Econometrica, Vol. 83, No. 1, 01.01.2015, p. 193-237.

    Research output: Contribution to journalArticle

    Sadzik, T & Stacchetti, E 2015, 'Agency Models With Frequent Actions', Econometrica, vol. 83, no. 1, pp. 193-237. https://doi.org/10.3982/ECTA10656
    Sadzik T, Stacchetti E. Agency Models With Frequent Actions. Econometrica. 2015 Jan 1;83(1):193-237. https://doi.org/10.3982/ECTA10656
    Sadzik, Tomasz ; Stacchetti, Ennio. / Agency Models With Frequent Actions. In: Econometrica. 2015 ; Vol. 83, No. 1. pp. 193-237.
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