Calibrated Incentive Contracts

64 Pages Posted: 10 May 2011

See all articles by Sylvain Chassang

Sylvain Chassang

New York University (NYU) - Department of Economics

Date Written: April 24, 2011

Abstract

This paper studies a dynamic agency problem which includes limited liability, moral hazard and adverse selection. The paper develops a robust approach to dynamic contracting based on calibrating the payoffs that would have been delivered by simple benchmark contracts that are attractive but infeasible, due to limited liability constraints. The resulting dynamic contracts are detail-free and satisfy robust performance bounds independently of the underlying process for returns, which need not be i.i.d. or even ergodic.

Suggested Citation

Chassang, Sylvain, Calibrated Incentive Contracts (April 24, 2011). Princeton University Economic Theory Center Working Paper No. 013-2011. Available at SSRN: https://ssrn.com/abstract=1836482 or http://dx.doi.org/10.2139/ssrn.1836482

Sylvain Chassang (Contact Author)

New York University (NYU) - Department of Economics ( email )

19 West 4th Street
New York, NY 10012
United States

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