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Optimal Contract

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Optimal contract
The contract that balances the three types of agency costs (contracting, monitoring, and misbehavior) against one another to minimize the total cost.

Optimal Contract
A contract that minimizes cost to the lowest possible level for all parties.


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Then, how will the inequity aversion influence the optimal contract for multiple agents?
They establish the general optimal contract analytically and calibrate the model to the observed contracts of 595 CEOs.
Thus, the optimal contract under collusion removes the potential situation in which one agent misreports his type when both agents are efficient.
 
 
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