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
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.
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.
Economists are developing incentive-maximizing optimal contracts
, and the new National Football League contracts are moving in that direction.