Continuous-time Principal-Agent Problems: Necessary and Sufficient Conditions for Optimality∗
نویسندگان
چکیده
In this paper we present a unified approach to solving principal-agent problems in models driven by Brownian Motion. We apply the stochastic maximum principle to give necessary and sufficient conditions for optimal contracts, for both the symmetric information case and the hidden information case. We also make a distinction between the case of the utility from the payoff being separable or not separable from the penalty on the agent’s effort. Our methodology covers a number of frameworks considered in the existing literature. The main finance application of this theory is optimal compensation of company executives.
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