Paper #337
- Título:
- Recursive contracts
- Autores:
- Albert Marcet y Ramon Marimon
- Data:
- Septiembre 1994
- Resumen:
- We obtain a recursive formulation for a general class of contracting problems involving incentive constraints. Under these constraints, the corresponding maximization (sup) problems fails to have a recursive solution. Our approach consists of studying the Lagrangian. We show that, under standard assumptions, the solution to the Lagrangian is characterized by a recursive saddle point (infsup) functional equation, analogous to Bellman's equation. Our approach applies to a large class of contractual problems. As examples, we study the optimal policy in a model with intertemporal participation constraints (which arise in models of default) and intertemporal competitive constraints (which arise in Ramsey equilibria).
- Palabras clave:
- Time inconsistency, recursive formulation, dynamic programming, Ramsey equilibrium, participation constraint, recursive saddle points
- Códigos JEL:
- C61, C63
- Área de investigación:
- Macroeconomía y Economía Internacional
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