Recursive Contracts

Albert Marcet and Ramon Marimon

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: 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.

Keywords: Transactional relationships; contracts and reputation; recursive formulation; participation constraint (search for similar items in EconPapers)
JEL-codes: D80 L14 (search for similar items in EconPapers)
Date: 2011-06
New Economics Papers: this item is included in nep-cta and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Related works:
Journal Article: Recursive Contracts (2019)
Working Paper: Recursive Contracts (2011)
Working Paper: Recursive contracts (2011)
Working Paper: Recursive Contracts (2011)
Working Paper: Recursive Contracts (1998)
Working Paper: Recursive contracts (1998)
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