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Agency Models With Frequent Actions

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  • Tomasz Sadzik
  • Ennio Stacchetti

Abstract

The paper analyzes dynamic principal–agent models with short period lengths. The two main contributions are: (i) an analytic characterization of the values of optimal contracts in the limit as the period length goes to 0, and (ii) the construction of relatively simple (almost) optimal contracts for fixed period lengths. Our setting is flexible and includes the pure hidden action or pure hidden information models as special cases. We show how such details of the underlying information structure affect the optimal provision of incentives and the value of the contracts. The dependence is very tractable and we obtain sharp comparative statics results. The results are derived with a novel method that uses a quadratic approximation of the Pareto boundary of the equilibrium value set.

Suggested Citation

  • Tomasz Sadzik & Ennio Stacchetti, 2015. "Agency Models With Frequent Actions," Econometrica, Econometric Society, vol. 83, pages 193-237, January.
    • Handle: RePEc:wly:emetrp:v:83:y:2015:i::p:193-237
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    Cited by:

    1. Johannes Hörner & Nicolas Klein & Sven Rady, 2022. "Overcoming Free-Riding in Bandit Games," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(4), pages 1948-1992.
    2. William R. Zame, 2022. "Asset Trading in Continuous Time: A Cautionary Tale," Papers 2207.03397, arXiv.org.
    3. Doruk Cetemen & Felix Zhiyu Feng & Can Urgun, 2019. "Contracting with Non-Exponential Discounting: Moral Hazard and Dynamic Inconsistency," Working Papers 2019-17, Princeton University. Economics Department..
    4. Xi Chen & Yu Chen & Xuhu Wan, 2018. "Delegated Project Search," Graz Economics Papers 2018-11, University of Graz, Department of Economics.
    5. Benjamin Hébert, 2018. "Moral Hazard and the Optimality of Debt," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(4), pages 2214-2252.

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