arXiv subjects

Guillermo Alonso Alvarez

Publications and source records attributed to Guillermo Alonso Alvarez.

6 recordsLinked to original sources

arXiv2026

Contracting a crowd of heterogeneous agents

We study optimal contract design for large populations of heterogeneous agents whose actions generate network spillovers represented by an interaction function. In a linear-quadratic framework, we solve the finite-agent problem and its continuum limit, obtaining explicit optimal contracts and equilibrium efforts. We show that the continuum contract can be evaluated on a large finite sample of agents to obtain admissible contracts that achieve the finite-agent principal's value up to an error of order 1/N. This provides a scalable approximation for settings with many interacting agents. We also prove stability with respect to perturbations of the interaction function and provide comparative statics and numerical examples showing how network position affects effort, incentives, and the principal's value. The results identify how optimal incentives should be targeted toward agents whose actions generate larger spillovers.

econ.TH↗

arXiv2026

Principal-agent problems with adverse selection: A stochastic target problem formulation

We study a principal-agent problem with adverse selection, where the principal does not know the agent's true cost but must design a contract to optimize a specific criterion. Unlike standard screening frameworks that allow for self-selection, we assume the principal can only offer a unique contract. We show that the agent's optimization problem can be reformulated as a stochastic target problem. After characterizing the credible domain of this target problem, we show that the principal's objective can be solved as a stochastic optimal control problem with partial information and state constraints. The description of the credible domain also allows us to obtain the value of screening contracts.

econ.TH↗

arXiv2025

Contracting with discretionary bonuses

We study a continuous time contracting model in which a principal hires a risk averse agent to manage a project over a finite horizon and provides sequential payments whose timing is endogenously determined. The resulting nonzero-sum interaction between the principal and the agent is reformulated as a mixed control and stopping problem. Using numerical simulations, we investigate how factors such as the relative impatience of the parties and the number of bonus payments influence the principal's value and the structure of the optimal bonus payment scheme. A notable finding is that, in some contractual environments, the principal optimally offers a sign-on bonus to front-load incentives.

econ.TH↗

arXiv2024

Sequential optimal contracting in continuous time

In this paper we study a principal-agent problem in continuous time with multiple lump-sum payments (contracts) paid at different deterministic times. We reduce the non-zero sum Stackelberg game between the principal and agent to a standard stochastic optimal control problem. We apply our result to a benchmark model for which we investigate how different inputs (payment frequencies, payments' distribution, discounting factors, agent's reservation utility) affect the principal's value and agent's optimal compensations.

math.OC↗

arXiv2023

Optimal contract design via relaxation: application to the problem of brokerage fee for a client with private signal

In this paper we show how the relaxation techniques can be used to establish the existence of an optimal contract in presence of information asymmetry. The method we illustrate was initially motivated by the problem of designing optimal brokerage fees, but it does apply to other optimal contract problems, in which (i) the agent controls linearly the drift of a diffusion process, (ii) the direct dependence of the principal's and the agent's objectives on the strategy of the agent is of a special form, and (iii) the space of admissible contracts is compact. This method is then applied to establish existence of an optimal brokerage fee in a market model with a private trading signal observed by the broker's client but not by the broker.

q-fin.MF↗

arXiv2022

Optimal brokerage contracts in Almgren-Chriss model with multiple clients

This paper constructs optimal brokerage contracts for multiple (heterogeneous) clients trading a single asset whose price follows the Almgren-Chriss model. The distinctive features of this work are as follows: (i) the reservation values of the clients are determined endogenously, and (ii) the broker is allowed to not offer a contract to some of the potential clients, thus choosing her portfolio of clients strategically. We find a computationally tractable characterization of the optimal portfolios of clients (up to a digital optimization problem, which can be solved efficiently if the number of potential clients is small) and conduct numerical experiments which illustrate how these portfolios, as well as the equilibrium profits of all market participants, depend on the price impact coefficients.

q-fin.TR↗