A Continuous-Time Version of the Principal-Agent Problem

摘要

This paper describes a new continuous-time principal-agent model,in which the output is a diffusion process with drift determined by the agent's unobserved effort.The risk-averse agent receives consumption continuously.The optimal contract,based on the agent's continuation value as a state variable,is computed by a new method using a differential equation.During employment,the output path stochastically drives the agent's continuation value until it reaches a point that triggers retirement,quitting,replacement,or promotion.The paper explores how the dynamics of the agent's wages and effort,as well as the optimal mix of short-term and long-term incentives,depend on the contractual environment.