Type: Working Paper
Working Paper, EUI ECO, 1998/37
MARCET, Albert, MARIMON, Ramon, Recursive contracts, EUI ECO, 1998/37 - https://hdl.handle.net/1814/682
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 Bellman's equation) that characterizes the solution. Our approach applies to a large class of contractual problems, as examples, we study the optimal policies in a model intertemporal participation (default) constraints and a model with competitive constraints (as in Ramsey problems).
Digitised version produced by the EUI Library and made available online in 2020.
Cadmus permanent link: https://hdl.handle.net/1814/682
Series/Number: EUI ECO; 1998/37
Publisher: European University Institute