Dynamic mechanism design with hidden income and hidden actions

@article{Doepke2006DynamicMD,
  title={Dynamic mechanism design with hidden income and hidden actions},
  author={Matthias Doepke and Robert M. Townsend},
  journal={J. Economic Theory},
  year={2006},
  volume={126},
  pages={235-285}
}
We develop general recursive methods to solve for optimal contracts in dynamic principal-agent environments with hidden states and hidden actions. Starting from a general mechanism with arbitrary communication, randomization, full history dependence, and without restrictions on preferences or technology, we show that the optimal contract can be implemented… CONTINUE READING