Dynamic Contracting in Asset Management under Investor-Partner-Manager Relationship

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See all articles by Jussi Keppo

Jussi Keppo

National University of Singapore - NUS Business School

Nizar Touzi

Ecole Polytechnique, Paris

Zuo Ruiting

National university of Singapore

Date Written: January 5, 2021

Abstract

We study incentive contracts in asset management business under dynamic actions and relationships between an investor, a partner of an investment company, and a fund manager of the company. The investor cannot perfectly observe the partner and manager’s actions, and similarly, the partner cannot perfectly observe the manager’s actions. We show how the actions of the participants and the costs of their actions interact. For instance, the optimal effort of the manager falls in the partner’s fundraising cost. We extend the model to a case with an investor, a partner, and multiple managers. In this case, each manager’s effort rises in the effectiveness of the managers’ cooperation and falls in their other managers’ effort cost.

Keywords: Principal-agent model, moral hazard, stochastic optimal control

JEL Classification: C02, D21, D86, G23, J33

Suggested Citation

Keppo, Jussi and Touzi, Nizar and Ruiting, Zuo, Dynamic Contracting in Asset Management under Investor-Partner-Manager Relationship (January 5, 2021). Available at SSRN: https://ssrn.com/abstract=3761499

Jussi Keppo (Contact Author)

National University of Singapore - NUS Business School ( email )

1 Business Link
Singapore, 117592
Singapore

Nizar Touzi

Ecole Polytechnique, Paris ( email )

1 rue Descartes
Paris, 75005
France

Zuo Ruiting

National university of Singapore ( email )

+65 6516-3000 (Phone)

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