ABSTRACT

We extend Merton (1969)’s analysis of capital allocation, consumption, and savings choices to the case in which asset management is delegated to several privately informed agents. With a continuum of agents, mean-field control techniques yield a simple and intuitive solution: capital reallocation is linear in relative performance, and managers’ fees are proportional to assetsunder-management. We show that these properties do not obtain in the single agent case. We also show that continuation
utilities are exposed to idiosyncratic risk and increasingly unequal between managers. Finally, investment is lower than under symmetric information because incentive constraints reduce risksharing.

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