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Calibrated Incentive Contracts

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  • Sylvain Chassang

Abstract

This paper studies a dynamic agency problem which includes limited liability, moral hazard and adverse selection. The paper develops a robust approach to dynamic contracting based on calibrating the payoffs that would have been delivered by simple benchmark contracts that are attractive but infeasible, due to limited liability constraints. The resulting dynamic contracts are detail-free and satisfy robust performance bounds independently of the underlying process for returns, which need not be i.i.d. or even ergodic.
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Suggested Citation

  • Sylvain Chassang, 2013. "Calibrated Incentive Contracts," Econometrica, Econometric Society, vol. 81(5), pages 1935-1971, September.
    • Handle: RePEc:ecm:emetrp:v:81:y:2013:i:5:p:1935-1971
    DOI: ECTA9987
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    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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