{"title":"Implementing deterministic outcomes in stochastic dynamic environments","authors":"Roberto Burguet, Michael C. Tseng","doi":"10.1016/j.econlet.2024.111937","DOIUrl":null,"url":null,"abstract":"<div><p>In noisy environments with adverse selection and moral hazard, dynamic contracts can induce a risk-neutral agent’s actions to deterministically implement any one-shot, incentive-compatible outcome. Thus, dynamic contracts improve upon the static second-best when the principal’s payoff is concave in output, e.g., due to risk aversion or payoff concavity. We bring out a new intuition that applies to both principal–agent and limited commitment settings (such as Kyle, 1985)—in both settings, the informed agent can be induced to reveal all his private information.</p></div>","PeriodicalId":11468,"journal":{"name":"Economics Letters","volume":"243 ","pages":"Article 111937"},"PeriodicalIF":2.1000,"publicationDate":"2024-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Economics Letters","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S016517652400421X","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
In noisy environments with adverse selection and moral hazard, dynamic contracts can induce a risk-neutral agent’s actions to deterministically implement any one-shot, incentive-compatible outcome. Thus, dynamic contracts improve upon the static second-best when the principal’s payoff is concave in output, e.g., due to risk aversion or payoff concavity. We bring out a new intuition that applies to both principal–agent and limited commitment settings (such as Kyle, 1985)—in both settings, the informed agent can be induced to reveal all his private information.
期刊介绍:
Many economists today are concerned by the proliferation of journals and the concomitant labyrinth of research to be conquered in order to reach the specific information they require. To combat this tendency, Economics Letters has been conceived and designed outside the realm of the traditional economics journal. As a Letters Journal, it consists of concise communications (letters) that provide a means of rapid and efficient dissemination of new results, models and methods in all fields of economic research.