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Long-sighted principal and myopic agents

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  • Demange, Gabrielle
  • Laroque, Guy

Abstract

We consider a long-lived principal, who can accumulate capital, and faces a sequence of myopic agents. For instance, a farsighted manager floats the shares of his firm on a myopic stock market, or a social security institution must propose contracts that are acceptable by the current active population. In these circumstances, we study the shape of the investment decision, the dynamics of accumulation, and the long-run steady-state. In particular, we characterize situations where the short horizons of the agents have a dramatic effect and lead to the closure of the firm or the demise of the social security system.
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Suggested Citation

  • Demange, Gabrielle & Laroque, Guy, 1998. "Long-sighted principal and myopic agents," Journal of Mathematical Economics, Elsevier, vol. 30(2), pages 119-146, September.
    • Handle: RePEc:eee:mateco:v:30:y:1998:i:2:p:119-146
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    1. William A. Brock & Leonard J. Mirman, 2001. "Optimal Economic Growth And Uncertainty: The Discounted Case," Chapters, in: W. D. Dechert (ed.), Growth Theory, Nonlinear Dynamics and Economic Modelling, chapter 1, pages 3-37, Edward Elgar Publishing.
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    6. Brock, William A & Mirman, Leonard J, 1973. "Optimal Economic Growth and Uncertainty: The No Discounting Case," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 560-573, October.
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    Cited by:

    1. Kjell Hausken, 2019. "Principal–Agent Theory, Game Theory, and the Precautionary Principle," Decision Analysis, INFORMS, vol. 16(2), pages 105-127, June.

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