Aggregation and Linearity in the Provision of Intertemporal Incentives.

Holmström, B., & Milgrom, P. (1987). Aggregation and Linearity in the Provision of Intertemporal Incentives. Econometrica, 55(2), 303-328.

Type

Journal article

Intellectual base

Primary research

Year

1987

Volume

55

Issue

2

Pages

303-328

Link

https://www.jstor.org/stable/1913238

Cited from

economics_finance

Cited by

2 citations across 2 artifacts.

Each citation links to the sentence it supports in the citing article.

Primes

• Agency Problem
  • The classic result (Holmström 1979; Holmström and Milgrom 1987) is β* = 1 / (1 + α·σ_ε^2 / k), where k parameterizes the effort-cost function

    This sourceShows an environment (CARA utility, continuous effort over time) in which linear contracts are optimal, extending Holmström's static optimal-contract result to dynamic settings. SUPPORTS the formal example's β* = 1/(1 + α·σ²/k) linear-contract result.

• Moral Hazard
  • This linear contract is the foundational second-best form studied in Holmström and Milgrom (1987)

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