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
is essential because optimal contract
theory, like other theories that
Sana, "Optimal contract
strategies for two stage supply chain," Economic Modelling, vol.
Later, Page  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.