Optimal contract

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.
References in periodicals archive ?
These constraints are used to solve the team manager's maximization problem, thus the optimal contract is characterized.
With this notice, the Berlin Transport Services ("LPP" or "Customer") for the upcoming award of construction contracts for the project Usedomer road 24 towards and initiates a market survey to determine the optimal contract and procurement structure.
By introducing asymmetric information in the dimension of willingness to pay, we find significant changes in the properties of the optimal contract.
The optimal contract reimburses the auditing costs in addition to full insurance for losses less than some endogenous limit.
Computed examples indicate that the optimal contract contingent on withdrawal histories can tolerate bank runs.
Specifically, it is well known that when the agency problem is present (because the agent faces a binding limited-liability constraint or exhibits risk aversion), then the principal's optimal contract provides rent to opportunistic agents.
More specifically, contracting requires a new set of local management skills and raises issues about the quality of contracted services, new costs associated with contracting, managing vendor competition and ensuring optimal contract performance.
We show that simple renting from the bank/landlord is an optimal contract for the provision of housing services to the household, conditional on the outside property manager being hired.
Instead of condemning incentive contracts on the basis of outcomes of poorly designed contracts, there is a need to test contracts that provide incentives consistent with desired outcomes and optimal contract theory.
34) These arguments reinforce the optimal contract theory approach, and thus implicitly support the blanket approval by the IRS of executive compensation practices under [section] 162(a)(1) for publicly traded corporations.
While this characterises an optimal sorting, it does not guarantee that the optimal contract is enforceable after it has been signed.
With modeling, you can proactively know what the optimal contract will look like.
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