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 ?
Hence, the board of directors' goal should be to find an optimal contract (incentive plan in practice) which puts the interests of both the manager and the owners, in line (Fried, Law and Economics Workshop 2003).
This is the firm's profit if it draws its contract optimally, assuming both workers and managers respond to this optimal contract according to their incentive constraints.
Since [A.sub.LR] is the optimal contract for type LR at the premium rate c = [p.sub.L], it is also the optimal contract at any premium rate c [greater than or equal to] [p.sub.L].
In the optimal contract, shareholders induce their manager to bear risk on only that part of the return whose probability distribution is affected by his actions.
The main contributions of the paper are summarized as follows: First, we propose optimal contract design under symmetric and asymmetric information, respectively.
Under the optimal contract, the fractions offered may differ for the two values of the prize.
The principal then must design an optimal contract that maximizes her objective (x - w), subject to two constraints: the agent chooses an action that maximizes U(w, e) and the expected utility of the contract must exceed his reservation utility (Lambert, 2001).
After we estimate our model's coefficients, we will develop a framework for designing optimal contract incentives.
is essential because optimal contract theory, like other theories that
Sana, "Optimal contract strategies for two stage supply chain," Economic Modelling, vol.
Later, Page [3] studied the optimal contract mechanism for principal-agent problem with adverse selection and moral hazard.
The optimal contract should provide the manager with the optimal incentive to provide productive effort.
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