Optimal Contract to Induce Continued Effort
نویسندگان
چکیده
We consider a basic model of a risk-neutral principal incentivizing a risk neutral agent to exert effort in order to raise the arrival rate of a Poisson process. The effort is costly to the agent, unobservable to the principal, and affects the instantaneous arrival rate. Each arrival yields a constant revenue to the principal. The principal, therefore, devises a mechanism involving payments and a potential stopping time in order to motivate the agent to always exert effort. We formulate this problem as a stochastic optimal control model with an incentive constraint in continuous time over an infinite horizon. Although we allow payments to take general forms contingent upon past arrival times, the optimal contract has a simple and intuitive structure, which depends on whether the agent is as patient as or less patient than the principal towards future income.
منابع مشابه
Coordination of R&D Effort, Pricing, and Periodic Review Replenishment Decisions in a Green Supply Chain through a Delay in Payment Contract
This study contributes to the literature on supply chain coordination by coordinating the research and development (R&D) effort, retail price, and inventory decisions. It investigates a real case in the home appliance industry. The main purpose of this study is to examine the optimal values of R&D effort, pricing, and inventory decisions under decentralized and centralized structures. Then, a d...
متن کاملAmerican Option Pricing of Future Contracts in an Effort to Investigate Trading Strategies; Evidence from North Sea Oil Exchange
In this paper, Black Scholes’s pricing model was developed to study American option on future contracts of Brent oil. The practical tests of the model show that market priced option contracts as future contracts less than what model did, which mostly represent option contracts with price rather than without price. Moreover, it suggests call option rather than put option. Using t hypothesis test...
متن کاملMoral Hazard and Clear Conscience∗
The hidden-action moral hazard model is one of the cornerstones of contract theory and it has become a basic tool to analyze job contracts and other agency relationships. Close social ties often implied by such relationships make the moral hazard model a prime application of approaches where agents care about inequity, and intrinsically reciprocate each others’ kind and hostile intentions. We c...
متن کاملAn Option-Revenue Sharing Coordination Contract with Price and Sales Effort Dependent Demand
This study proposes a novel option-revenue sharing coordination contract framework. In the proposed model, the retailer determines the number of order sales effort. The manufacturer sets the price of products for the wholesale strategy. The investigated supply chain problem analyzes the results of different strategies. In the proposed coordination contract problem, two types of games including ...
متن کاملOptimal shared-savings contracts in supply chains: Linear contracts and double moral hazard
In many supply chains consumption of indirect materials, sold by a supplier to a customer for use in her production process, can be reduced by efforts exerted by either party. Since traditional supply contracts provide no incentive for the supplier to exert such effort, shared-savings contracts have been proposed as a way to improve incentives in the channel, leading to more efficient effort ch...
متن کامل