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| Author: | Bizer, D. DeMarzo, P. |
| Title: | Optimal incentive contracts when agents can save, borrow and default |
| Journal: | Journal of Financial Intermediation
1999 : OCT, VOL. 8:4, p. 241-269 |
| Index terms: | FINANCIAL INTERMEDIARIES INCENTIVES CONTRACTS |
| Language: | eng |
| Abstract: | The standard Principal-Agent (PA) model assumes that the principal can control the agent's consumption profile. In an intertemporal setting, however, Rogerson (1985) shows that given the optimal PA contract, the agent has an unmet precautionary demand for savings. Thus the standard PA model is invalid if the agent has access to credit markets. In this paper the authors generalize the standard PA model to allow for saving and borrowing by the agent. |
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