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RMI Research Seminar

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Research Seminar - 2 May 2025 4PM - 530PM
Optimal Contracting with Many Agents 

Venue: Lim Tay Boh Seminar Room; AS2 03-12

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Research Seminar Abstract

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Abstract: The paper takes a mechanism design approach to dynamic capital allocation and risk-sharing between a planner (the principal) and decentralized asset managers (the agents). Incentive-compatibility implies that managers with better idiosyncratic performance get larger fees, capital, and continuation utilities. This generates an endogenous distribution of utilities across managers, which is a state variable of the optimal control problem of the principal. With a continuum of agents, this gives rise to a Bellman equation in an infinite-dimensional space, which we solve with mean-field techniques. With CRRA utilities, optimal compensation is proportional to assets-under-management and costly exposure to idiosyncratic risk lowers risky investment.

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About the Speaker

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Prof. Ernst-Ludwig von Thadden

University of Mannheim

Ernst-Ludwig von Thadden is professor of economics and finance at the University of Mannheim (Germany). He holds a PhD in economics from the University of Bonn and an MPhil from the London School of Economics. He was professor of economics at the University of Lausanne (Switzerland) from 1995-2004 and has held visiting faculty positions at Stanford University (CA), Universita Tor Vergata (Rome), the London School of Economics, and Imperial College, London. He was Resident Fellow of the Center for Advanced Study in the Behavioral Sciences in Stanford (CA), council member of the European Economic Association, and has held the Bertil Danielsson Distinguished Visiting Chair at the Stockholm School of Economics (Sweden). He is a member of the Heidelberg Academy of Arts and Sciences and fellow of the European Economic Association. From 2006 to 2011 he was the founding director of the Mannheim Graduate School in the Economic and Social Sciences and lead manager of the university's research grant in the German "Initiative of Excellence". From 2012 - 2018 he served as president of the University of Mannheim. His research has covered financial economics, banking, regulation, political economy, bounded rationality, game theory, and macroeconomics.

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