Dynamic contracts with uncertainty about the production function

• Grant number: 12/18496-0
• Support Opportunities: Scholarships in Brazil - Master
• Start date: March 01, 2013
• End date: January 31, 2014
• Field of knowledge: Applied Social Sciences - Economics - Economic Theory
• Principal Investigator: Gabriel de Abreu Madeira
• Grantee: Maurício Massao Soares Matsumoto
• Host Institution: Faculdade de Economia, Administração e Contabilidade (FEA). Universidade de São Paulo (USP). São Paulo , SP, Brazil

Abstract

The moral hazard literature usually studies contracts in which at least one of the parties is fully informed about the production function of the goods or services of interest. We propose to model dynamic contracts in which both the agent and the principal are uncertain the production function. In this environment, the problem of learning about the technology at the same time as providing incentives to the agent arises. Once the contract is well defined, we will use linear programming techniques to solve it for a variety of numerical examples. The great advantage of this method is its robustness, since it allows to solve for the optimal contract even if the model is very complex and no analytic solutions exist. The solutions for the numerical examples will be interpreted in the light of economic theory, and will be compared to observable characteristics of real-world contracts. We will search the literature for related work in which we could apply our framework, with focus on the provision of public goods.

Academic Publications

(References retrieved automatically from State of São Paulo Research Institutions)

MATSUMOTO, Maurício Massao Soares. Dynamic moral hazard with learning about the production function. 2014. Master's Dissertation - Universidade de São Paulo (USP). Faculdade de Economia, Administração e Contabilidade (FEA/SBD) São Paulo.