Holger M. Müller
Holger M. Müller: Department of Economics, Postal: University of Mannheim, LS Hellwig, A5, Room A237, 68131 Mannheim, Germany
Abstract: The continuous-time principal-agent model with exponential utility developed by Holmström and Milgrom (1987) and generalized by Schättler and Sung (1993, 1996) and Sung (1995) admits a simple closed-form solution: The second-best sharing rule is linear in output. Unfortunately, the first-best sharing rule has never been derived. In this note, we show that the first-best sharing rule is also linear in output, which fits in nicely with an analogous result from static risk-sharing theory. In addition, we show that the slope is equal to the principal’s share of total absolute risk-aversion. This result is consistent with Borch’s (1962) fundamental theorem of Pareto-optimal risk-sharing.
8 pages, December 1996
Note: Published in Journal of Economic Theory 79/2, 1998, 276-280
Full text files
hastef0145.ps PostScript file
hastef0145.ps.zip PostScript file
Questions (including download problems) about the papers in this series should be directed to Helena Lundin ()
Report other problems with accessing this service to Sune Karlsson ().
This page generated on 2018-03-27 10:24:40.