This paper presents a new method for the analysis of moral hazard principal–agent problems. The new approach avoids the stringent assumptions on the distribution of outcomes made by the classical first‐order approach and instead only requires the agent's expected utility to be a rational...

This paper develops theoretical foundations for an error analysis of approximate equilibria in dynamic stochastic general equilibrium models with heterogeneous agents and incomplete financial markets. While there are several algorithms that compute prices and allocations for which agents'...

We consider an infinite-horizon exchange economy with incomplete markets and collateral constraints. As in the two-period model of Geanakoplos and Zame (2002), households can default on their liabilities at any time, and financial securities are only traded if the promises associated with these...