Type: Working Paper
Working Paper, EUI MWP, 2011/03
MARCET, Albert, MARIMON, Ramon, Recursive contracts, EUI MWP, 2011/03 - http://hdl.handle.net/1814/16815
Retrieved from Cadmus, EUI Research Repository
We obtain a recursive formulation for a general class of contracting problems involving incentive constraints. These constraints make the corresponding maximization sup problems non-recursive. Our approach consists of studying a recursive Lagrangian. Under standard general conditions, there is a recursive saddle-point (infsup) functional equation (analogous to a Bellman equation) that characterizes the recursive solution to the planner's problem and forward-looking constraints. Our approach has been applied to a large class of dynamic contractual problems, such as contracts with limited enforcement, optimal policy design with implementability constraints, and dynamic political economy models.
Cadmus permanent link: http://hdl.handle.net/1814/16815
Series/Number: EUI MWP; 2011/03
Publisher: European University Institute