paper

Optimal Contract Design with Quadratic Effort Cost

arXiv:2503.08503

Abstract

The existence of an optimal contract of the principal-agent problem is a central issue in contract design. According to Cvitanić et al. [2], such an optimal contract can be derived from the existence of a classical solution to the corresponding Hamilton-Jacobi-Bellman (HJB) equation, which is a degenerate, fully nonlinear parabolic equation. In this work, we follow their model, consider the case with drift control, and prove the existence of the classical solution to the HJB equation.

Optimal Contract Design with Quadratic Effort Cost · wovepaper