Continuous-Time Incentives in Hierarchies
When and Where
Speakers
Description
In this talk, we will study a model of continuous–time optimal contracting in a hierarchy, which generalizes the one-period framework of Sung (2015) [1]. The hierarchy is modelled by a series of interlinked principal-agent problems, leading to a sequence of Stackelberg equilibria. More precisely, the principal (she) can contract with a manager (he), to incentivise him to act in her best interest, despite only observing the net benefits of the total hierarchy. The manager in turn subcontracts the agents below him. We will see through a simple example that, while the agents only control the drift of their outcome, the manager controls the volatility of the Agents’ continuation utility. Therefore, even this relatively simple introductory example justifies the use of recent results on optimal contracting for drift and volatility control, and therefore the theory on 2BSDEs. We will also discuss some possible extensions of this model, in particular when the outcome processes can be impacted by negative random jumps, representing accidents, and the workers can only control their intensity. Joint work in progress with Sarah Bensalem and Nicol´as Hern´andez-Santib´a˜nez.
About Emma Hubert
Emma Hubert received her Ph.D. in Mathematics from Université Paris-Est in December 2020. She joined the ORFE Department at Princeton University as an assistant professor in September 2021, after a year as a research associate in the Department of Mathematics & CFM - Imperial Institute of Quantitative Finance at Imperial College, London. Her research interests are in stochastic control and games, with a particular focus on contract theory and mean-field games, and their applications to energy management, epidemiology and finance.
References
[1] J. Sung. Pay for performance under hierarchical contracting. Mathematics and Financial Economics, 9(3):195–213, 2015.