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Authors
Advisor(s)
Abstract(s)
Consider a typical agency relation involving a capital owner and a manager. The principal (i.e., the capital owner) has a potential budget to assign to investment projects. The effective amount of investment will be a share of the potential level, given the specific form of interaction that will be established between the
principal and the agent (i.e., the manager). The budget setting problem originating from this relation is evaluated from the point of view of the manager, who wants to maximize the received budget, in an intertemporal basis. The optimal control problem is subject to a constraint, which indicates how the assigned budget evolves over time. In this constraint, a matching function takes a central role; the arguments of
the function are the agent’s effort to absorb new funds and the financial resources the principal has available but has not yet channeled to the manager.
Description
Keywords
Budget setting, Agency relation, Optimal control, Intertemporal optimization, Dynamic analysis.
Citation
Gomes, O. (2015). “A Budget Setting Problem.” in Jean-Pierre Bourguignon, Rolf Jeltsch, Alberto Adrego Pinto, Marcelo Viana (eds.), Dynamics, Games and Science – International Conference and Advanced School Planet Earth, DGS II, chapter 16, pp. 305-315, Berlin, Heidelberg: Springer International Publishing.