Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098177 | Journal of Economic Dynamics and Control | 2016 | 22 Pages |
Abstract
I extend the standard recursive methods to study the problem and show that it is optimal to set verification probabilities strictly less than 1. If the agent׳s absolute risk aversion declines sufficiently slowly, the principal will use verification regardless of its cost. If the agent's income is verified then he would get consumption and continuation utility strictly higher than if his income were not verified.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Latchezar Popov,