Barron, George Georgiadis, and Jeroen Swinkels, Northwestern University, "
Optimal Contracts with a Risk-Taking Agent"
Because manufacturing investment, retailer effort, and the respective bargaining powers affect supply chain operations and the development of
optimal contracts, in this paper, the choice of bargaining power is examined in consideration of moral hazards and irreversible investments in the supply chain.
We briefly examine the case with the
optimal contracts numerically.
We first consider the firm' s
optimal contracts, then the optimal number of workers and finally the optimal number of managers.
(1) One line of research about EM analyzes factors leading to EM and
optimal contracts between shareholders and managers.
Optimal Contracts for an Equity Financed Intermediary
M., 1979,
Optimal Contracts and Competitive Markets With Costly State Verification, Journal of Economic Theory, 21, 265-293.
Next we calculate some examples of
optimal contracts and then offer an example of an
optimal contract in an economy with public signals.
(3) The derivation of the payoffs in Table 1 stemming from the
optimal contracts derived in Result I is given in the Appendix.
Finally, we compare the two conditionally
optimal contracts and allocations to find the overall optimum.
The approach of offering
optimal contracts and having them enforced in decision-making units of optimal sizes is an important detail that must not be overlooked as the debate continues over consolidating small schools, reforming public education with vouchers and schools of choice, and trying to set standards and develop accountability among faculty and administrators.
Economists are developing incentive-maximizing
optimal contracts, and the new National Football League contracts are moving in that direction.
