The Principal-Agent Problem; A Stochastic Maximum Principle Approach
Optimization and Control
2014-11-27 v2
Abstract
We study a general class of Principal-Agent problems in continuous time under hidden action. By formulating the model as a coupled stochastic optimal control problem we are able to find a set of necessary conditions characterizing optimal contracts, using the stochastic maximum principle. An example is carried out to illustrate the proposed approach to the Principal-Agent problem under linear stochastic dynamics with a quadratic performance function.
Cite
@article{arxiv.1410.6392,
title = {The Principal-Agent Problem; A Stochastic Maximum Principle Approach},
author = {Boualem Djehiche and Peter Helgesson},
journal= {arXiv preprint arXiv:1410.6392},
year = {2014}
}
Comments
28 pages, 2 figures. v2 is a rewrite with substatial improvement of Section 3