Template-Type: ReDIF-Paper 1.0
Title: Dynamic Contracting with Many Agents
Author-Name: Bruno Biais
Author-Email: biaisb@hec.fr
Author-Name: Hans Gersbach
Author-Email: hgersbach@ethz.ch
Author-Name: Jean-Charles Rochet
Author-Email: jeancharles.rochet@gmail.com
Author-Name: Ernst-Ludwig von Thadden
Author-Email: vthadden@uni-mannheim.de
Author-Name: Stéphane Villeneuve
Author-Email: Stephane.Villeneuve@TSE-fr.eu
Classification-JEL: E44, E62
Keywords: Incomplete Financial Markets, Debt, Interest, Growth, Ponzi Games,
Heterogeneous Agents, Political Economy

Abstract: We analyze dynamic capital allocation and risk sharing between a principal and many
agents, who privately observe their output. The state variables of the mechanism design
problem are aggregate capital and the distribution of continuation utilities across agents.
This gives rise to a Bellman equation in an infinite dimensional space, which we solve
with mean-field techniques. We fully characterize the optimal mechanism and show that
the level of risk agents must be exposed to for incentive reasons is decreasing in their
initial outside utility. We extend classical welfare theorems by showing that any incentive-constrained 
optimal allocation can be implemented as an equilibrium allocation, with
appropriate money issuance and wealth taxation by the principal.

Note: 
Length: 34
Creation-Date: 2024-03
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp412
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2023_412v2