Thursday 9 March 2023 – 3:15pm-4:15pm

Risk-Sharing and optimal contracts with large exogenous risks

Stéphane Villeneuve, professor of applied mathematics, Toulouse School of Economics.

 

 

Abstract:

We consider a dynamic principal-agent model that naturally  extends the classical Holmström-Milgrom setting to include a risk capable of stopping production completely. We obtain an explicit characterization of the optimal wage along with the optimal action provided by the agent. The optimal contract is linear by offering both a fixed share of the output which is similar to the standard Holmström-Milgrom model and a linear prevention mechanism that is proportional to the random lifetime of the contract.  We then extend the model by allowing insurable risks where the agent can control the intensity of the failure by exerting an additional costly effort.

 

 

Registration, please contact robin@em-lyon.com

📍 The seminar will take place at emlyon business School (Ecully campus) – Room Learning Lab – building B, 1st Floor.

Stéphane Villeneuve

 

Professor of applied mathematics, Toulouse School of Economics

BioStéphane Villeneuve is a professor of applied mathematics and former dean of the department of mathematics at University of Toulouse 1 Capitole, where he is affiliated with both Toulouse School of Management and TSE. He is also a member of the TSE-Partnership Foundation (TSE-P) where he coordinates the Chair on Market Risk and Value Creation sponsored by SCOR under the aegis of The Risk Foundation. His research focuses on stochastic methods in finance and their applications for dynamic contracting.