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Calibrated Incentive Contracts
Author(s) -
Chassang Sylvain
Publication year - 2013
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta9987
Subject(s) - incentive , economics , microeconomics , business
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 incentive properties of 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.