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.
Recommendations
- A principal-agent problem in continuous time
- A Continuous-Time Version of the Principal–Agent Problem
- The Multiperiod Principal-Agent Problem
- Randomization is optimal in the robust principal-agent problem
- Asymptotic efficiency in dynamic principal-agent problems
- The principal-agent problem with smooth ambiguity
- The optimal solution to a principal-agent problem with unknown agent ability
- A random time-dependent noncooperative equilibrium problem
- Distributions for the first-order approach to principal-agent problems
- Randomized strategies and prospect theory in a dynamic context
Cites work
- A Continuous-Time Version of the Principal–Agent Problem
- Aggregation and Linearity in the Provision of Intertemporal Incentives
- An Overview of Viscosity Solutions of Path-Dependent PDEs
- Backward Stochastic Differential Equations in Finance
- Backward stochastic PDEs related to the utility maximization problem
- BSDE<scp>s</scp> with a random terminal time driven by a monotone generator and their links with PDE<scp>s</scp>
- Contract theory in continuous-time models
- Dynamic programming approach to principal-agent problems
- Existence of Optimal Stochastic Control Laws
- Existence of Optimal Strategies Based on Specified Information, for a Class of Stochastic Decision Problems
- scientific article; zbMATH DE number 51724 (Why is no real title available?)
- On pathwise stochastic integration
- Pathwise construction of stochastic integrals
- Principal-Agent Problems with Exit Options
- Second order backward SDE with random terminal time
- Stochastic control for a class of nonlinear kernels and applications
- Wellposedness of second order backward SDEs
Cited in
(23)- Asymptotic efficiency in dynamic principal-agent problems
- Dynamic programming approach to principal-agent problems
- A solvable time-inconsistent principal-agent problem
- Distributions for the first-order approach to principal-agent problems
- The principal-agent problem for service rate event-dependency
- Quadratic \(G\)-BSDEs with convex generators and unbounded terminal conditions
- Conditional Analysis and a Principal-Agent Problem
- Principal-Agent Problems with Exit Options
- The Multiperiod Principal-Agent Problem
- Risk-sharing and optimal contracts with large exogenous risks
- Optimal stopping contract for public private partnerships under moral hazard
- Principal-agent problem with multiple principals
- Stability of backward stochastic differential equations: the general Lipschitz case
- Continuous-time incentives in hierarchies
- An exit contract optimization problem
- Time-inconsistent contract theory
- Stochastic integration on stochastic sets of interval type and applications to mathematical finance
- Income disaster model with optimal consumption
- A principal-agent model for optimal incentives in renewable investments
- Agency problem and mean field system of agents with moral hazard, synergistic effects and accidents
- A note on persistent private information
- Golden parachutes under the threat of accidents
- Randomisation with moral hazard: a path to existence of optimal contracts
This page was built for publication: Random Horizon Principal-Agent Problems
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q5037495)
