Recursive Methods for Incentive Problems

46 Pages Posted: 27 Mar 2011 Last revised: 17 Aug 2012

See all articles by Matthias Messner

Matthias Messner

University of Cologne

Nicola Pavoni

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Centre for Economic Policy Research (CEPR)

Christopher M. Sleet

Carnegie Mellon University - David A. Tepper School of Business

Date Written: October 1, 2011

Abstract

Many separable dynamic incentive problems have primal recursive formulations in which utility promises serve as state variables. We associate families of dual recursive problems with these by selectively dualizing constraints. We make transparent the connections between recursive primal and dual approaches, relate value iteration under each and give conditions for such value iteration to be convergent to the true value function.

Keywords: Dynamic Contracts, Duality, Dynamic Programming

JEL Classification: C61, C73, D82, D86, E61

Suggested Citation

Messner, Matthias and Pavoni, Nicola and Sleet, Christopher M., Recursive Methods for Incentive Problems (October 1, 2011). Available at SSRN: https://ssrn.com/abstract=1792816 or http://dx.doi.org/10.2139/ssrn.1792816

Matthias Messner

University of Cologne ( email )

Albertus Magnus Platz
Cologne, NRW 50923
Germany

Nicola Pavoni

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Christopher M. Sleet (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

HOME PAGE: http://business.tepper.cmu.edu/display_faculty.aspx?id=244

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