Random Horizon Principal-Agent Problems
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Publication:5037495
DOI10.1137/20M1321620zbMATH Open1483.91123arXiv2002.10982OpenAlexW4211204780MaRDI QIDQ5037495FDOQ5037495
Authors: Zhenjie Ren, Nizar Touzi, Junjian Yang, Yiqing Lin 
Publication date: 1 March 2022
Published in: SIAM Journal on Control and Optimization (Search for Journal in Brave)
Abstract: We consider a general formulation of the random horizon Principal-Agent problem with a continuous payment and a lump-sum payment at termination. In the European version of the problem, the random horizon is chosen solely by the principal with no other possible action from the agent than exerting effort on the dynamics of the output process. We also consider the American version of the contract, which covers the seminal Sannikov's model, where the agent can also quit by optimally choosing the termination time of the contract. Our main result reduces such non-zero-sum stochastic differential games to appropriate stochastic control problems which may be solved by standard methods of stochastic control theory. This reduction is obtained by following Sannikov's approach, further developed by Cvitanic, Possamai, and Touzi. We first introduce an appropriate class of contracts for which the agent's optimal effort is immediately characterized by the standard verification argument in stochastic control theory. We then show that this class of contracts is dense in an appropriate sense so that the optimization over this restricted family of contracts represents no loss of generality. The result is obtained by using the recent well-posedness result of random horizon second-order backward SDE.
Full work available at URL: https://arxiv.org/abs/2002.10982
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Optimal stochastic control (93E20) Contract theory (moral hazard, adverse selection) (91B41) Principal-agent models (91B43)
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Cited In (16)
- Principal-Agent Problems with Exit Options
- Continuous-time incentives in hierarchies
- Conditional Analysis and a Principal-Agent Problem
- Principal-agent problem with multiple principals
- Optimal stopping contract for public private partnerships under moral hazard
- An exit contract optimization problem
- Distributions for the first-order approach to principal-agent problems
- Risk-sharing and optimal contracts with large exogenous risks
- Time-inconsistent contract theory
- The principal-agent problem for service rate event-dependency
- A solvable time-inconsistent principal-agent problem
- Asymptotic efficiency in dynamic principal-agent problems
- Stability of backward stochastic differential equations: the general Lipschitz case
- Dynamic programming approach to principal-agent problems
- Quadratic \(G\)-BSDEs with convex generators and unbounded terminal conditions
- The Multiperiod Principal-Agent Problem
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