On Repeated Moral Hazard with Discounting
- 1 October 1987
- journal article
- Published by Oxford University Press (OUP) in The Review of Economic Studies
- Vol. 54 (4) , 599-617
- https://doi.org/10.2307/2297484
Abstract
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.Keywords
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