Monotone Solutions to the Moral Hazard Problem

39 Pages Posted: 7 Aug 2018

See all articles by Hanqing Jin

Hanqing Jin

Mathematical Institute; Oxford-Nie Financial Big Data Laboratory; St. Peter's College

Jianming Xia

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Sciences

Date Written: July 18, 2018

Abstract

This paper investigates monotone solutions of the moral hazard problems without the monotone likelihood ratio property. The optimal monotone solutions are explicitly characterized by a concave envelope relaxation approach for a two-action model in which the principal is risk neutral or exhibits constant absolute risk aversion.

Keywords: Moral hazard, Monotone solution, Concave envelope, Monotone likelihood ratio

JEL Classification: C61, D82, D86

Suggested Citation

Jin, Hanqing and Xia, Jianming, Monotone Solutions to the Moral Hazard Problem (July 18, 2018). Available at SSRN: https://ssrn.com/abstract=3215007 or http://dx.doi.org/10.2139/ssrn.3215007

Hanqing Jin

Mathematical Institute ( email )

Andrew Wiles Building
Radicliff Observatory Quarter, Woodstock Road
Oxford, oxfordshire OX2 6GG
United Kingdom

HOME PAGE: http://www.maths.ox.ac.uk

Oxford-Nie Financial Big Data Laboratory ( email )

Andrew Wiles Building
Woodstock Road
Oxford, Oxfordshire OX2 6GG
United Kingdom

St. Peter's College ( email )

New Inn Hall Street
Oxford, Oxfordshire OX1 2DL
United Kingdom

HOME PAGE: http://www.spc.ox.ac.uk

Jianming Xia (Contact Author)

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Sciences ( email )

Zhong-Guan-Cun-Dong-Lu 55, Haidian District
Beijing 100190
China

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