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.
