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Décamps, Jean-Paul
and Villeneuve, Stéphane
(2019)
A two-dimensional control problem arising from dynamic contracting theory.
Finance and Stochastics, vol. 23 (n° 1).
pp. 1-28.
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Abstract
We study a corporate finance dynamic contracting model in which the firm's growth rate fluctuates and is impacted by the unobservable effort exercised by the manager. We show that the principal's problem takes the form of a two-dimensional Markovian control problem. We prove regularity properties of the value function that are instrumental in the construction of the optimal contract that implements full effort, which we derive explicitly. These regularity results appear in some recent economic studies but with heuristic proofs that do not clarify the importance of the regularity of the value function at the boundaries.
| Item Type: | Article |
|---|---|
| Language: | English |
| Date: | January 2019 |
| Refereed: | Yes |
| Place of Publication: | Berlin |
| Uncontrolled Keywords: | Principal-agent problem, two-dimensional control problem, regularity properties |
| JEL Classification: | G30 - General |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse), TSM Research (Toulouse) |
| Site: | UT1 |
| Date Deposited: | 02 Oct 2018 07:52 |
| Last Modified: | 09 Sep 2021 15:35 |
| OAI Identifier: | oai:tse-fr.eu:32979 |
| URI: | https://publications.ut-capitole.fr/id/eprint/26294 |
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A two-dimensional control problem arising from dynamic contracting theory. (deposited 24 Apr 2018 09:15)
- A two-dimensional control problem arising from dynamic contracting theory. (deposited 02 Oct 2018 07:52) [Currently Displayed]
