THIS paper is concerned with those actions of business firms which have harmful effects on others. The standard example is that of a factory the smoke from which has harmful effects on those occupying neighbouring properties. The economic analysis of such a situation has usually proceeded in terms of a divergence between the private and social product of the far' ory, in which economists have largely followed the treatment of Pigou in The Economics of Welfare. The conclusions to which this kind of analyris seems to have led most economists is that it would be desirable to make the owner of the factory liable for the damage caused to those injured by the smoke, or alternatively, to place a tax on the factory owner varying with the amount of smoke produced and equivalent in money terms to the damage it would cause, or finally, to exclude the factory from residential districts (and presumably from other

闡釋《社會成本問題》[The Problem of Social Cost]

The Communication program emphasizes theory, research, and application to examine the ways humans communicate, verbally and non-verbally, across a variety of levels and contexts. This is particularly important as communication shapes our ideas and values, gives rise to our politics, consumption and socialization, and helps to define our identities and realities. Its power and potential is inestimable. From the briefest of text messages to the grandest of public declarations, we indeed live within communication and invite you to join us in appreciating its increasing importance in contemporary society. From Twitter and reality television to family relationships and workplace dynamics, communication is about understanding ourselves, our media, our relationships, our culture and how these things connect.

의사 간호사 communication

This paper investigates a new class of two-player games in continuous time, in which the players' observations of each other's actions are distorted by Brownian motions. These games are analogous to repeated games with imperfect monitoring in which the players take actions frequently. Using a differential equation, we find the set E(r) of payoff pairs achievable by all public perfect equilibria of the continuous-time game, where r is the discount rate. The same differential equation allows us to find public perfect equilibria that achieve any value pair on the boundary of the set 9(r). These public perfect equilibria are based on a pair of continuation values as a state variable, which moves along the boundary of E(r) during the course of the game. In order to give players incentives to take actions that are not static best responses, the pair of continuation values is stochastically driven by the players' observations of each other's actions along the boundary of the set S(r).

/pdf/games-with-imperfectly-observable-actions-in-continuous-time-3ikd41bc59.pdf

Games with Imperfectly Observable Actions in Continuous Time

This paper analyzes optimal executive compensation by studying a continuous-time agency model where the agent controls the drift of the geometric Brownian motion firm size. In contrast to existing agency models with constant firm size setting, in our model the changing firm size generates partial incentives, analogous to awarding the agent equity shares according to her continuation payoff. Along the optimal path, necessary additional incentives are provided by the optimal contract. When the agent is as patient as investors, performance-based stock grants implement the optimal contract; we also characterize the optimal contracting with shirking for this case. Our model generates a leverage effect on the firm's equity returns, and implies that the agency problem is more severe for smaller firms. That the empirical evidence pertaining to grants-performance sensitivity shows that CEO compensation is largely based on historical performance - rather than current performance - lends support to our model.

/pdf/optimal-executive-compensation-when-firm-size-follows-4sgkklzu8a.pdf

Optimal Executive Compensation When Firm Size Follows Geometric Brownian Motion

This paper studies the design of optimal contracts in dynamic environments where agents have private information that is persistent. In particular, I focus on a continuous time version of a benchmark insurance problem where a risk averse agent would like to borrow from a risk neutral lender to stabilize his income stream. The income stream is private information to the borrower and is persistent. I find that the optimal contract conditions on the agent's reported endowment as well as two additional state variables: the agent's utility and marginal utility under the contract. I show how persistence alters the nature of the contract, and consider an exponential utility example which can be solved in closed form. Unlike the previous discrete time models with i.i.d. private information, the agent's consumption under the contract may grow over time. Furthermore, in my setting the efficiency losses due to private information increase with the persistence of the endowment, and the distortions vanish as I approximate an i.i.d. endowment.

Persistent Private Information

In this paper, we develop continuous-time methods for solving dynamic principal-agent problems in which the agent's privately observed productivity shocks are persistent over time. We characterize the optimal contract as the solution to a system of ordinary differential equations and show that, under this contract, the agent's utility converges to its lower bound/immiserization occurs. Unlike under risk-neutrality, the wedge between the marginal rate of transformation and a low-productivity agent's marginal rate of substitution between consumption and leisure will not vanish permanently at her first high-productivity report; also, the wedge increases with the duration of a low-productivity report. We apply the methods to numerically solve the Mirrleesian dynamic taxation model, and find that the wedge is significantly larger than that in the independently and identically distributed (i.i.d.) shock case.

Dynamic Contracting with Persistent Shocks

https://mpra.ub.uni-muenchen.de/23108/1/MPRA_paper_23108.pdf

Dynamic contracting with persistent shocks

https://www.economicdynamics.org/meetpapers/2014/paper_650.pdf

A duality approach to continuous-time contracting problems with limited commitment

https://isiarticles.com/bundles/Article/pre/pdf/51430.pdf

Optimal risk sharing and borrowing constraints in a continuous-time model with limited commitment

We study a continuous-time version of the optimal risk-sharing problem with one-sided commitment. In the optimal contract, the agent's consumption is a time-invariant, strictly increasing function of a single state variable: the maximal level of the agent's income realized to date. We characterize this function in terms of the agent's outside option value function and the discounted amount of time in which the agent's income process is expected to reach a new to-date maximum. Under constant relative risk aversion we solve the model in closed-form: optimal consumption of the agent equals a constant fraction of his maximal income realized to date. In the complete-markets implementation of the optimal contract, the Alvarez-Jermann solvency constraints take the form of a simple borrowing constraint familiar from the Bewley-Aiyagari incomplete-markets models.

Yuzhe Zhang

Papers

Dynamic Contracting with Persistent Shocks

Dynamic contracting with persistent shocks

A duality approach to continuous-time contracting problems with limited commitment

Optimal risk sharing and borrowing constraints in a continuous-time model with limited commitment

Optimal risk sharing and borrowing constraints in a continuous-time model with limited commitment