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1
Guigou, Jean-Daniel. "Oligopole et contrats financiers optimaux." Revue française d'économie 15, no. 3 (2001): 167–85. http://dx.doi.org/10.3406/rfeco.2001.1500.
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Boyer, Martin. "Les clauses de valeur à neuf sont-elles optimales?" Articles 77, no. 1 (February 5, 2009): 53–74. http://dx.doi.org/10.7202/602344ar.
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RÉSUMÉ Le but de cet article est d’étudier le contrat d’assurance optimal dans un contexte où un assuré est soumis à de l’anti-sélection (qu’on appelle aussi dans ce contexte aléa moral ex post) et où un assureur est incapable de s’engager pleinement dans une stratégie de vérification. Le problème étudié se rapproche grandement de celui lié à la fraude à l’assurance où seul l’assuré connaît à coût nul l’état de la nature (s’il a subi un sinistre ou non). En modélisant le comportement de l’assureur et de l’assuré comme un jeu non coopératif, nous démontrons que les contrats d’assurance comportant une clause de valeur à neuf sont optimaux. Ces contrats, qui surindemnisent un assuré en cas de sinistre, permettent à l’assureur d’envoyer à l’assuré un signal crédible qu’il vérifiera avec une plus grande probabilité les réclamations de ce dernier.
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Rost, Katja, and Margit Osterloh. "Are top executives paid too much? Determinants of directors’ pay in Switzerland." Corporate Board role duties and composition 4, no. 2 (2008): 7–23. http://dx.doi.org/10.22495/cbv4i2art1.
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Executive compensation has become a fashionable topic: Cross-nationally, the earnings of executives and non-executive directors have risen significantly in recent years. Academic literature offers two hypotheses for this trend, a “fat cat” and an “optimal-contract” explanation. Proponents of the “fat cat” explanation state that directors are paid too much due to their unjustified power. Proponents of the “optimal-contract” hypothesis state that competition in the managerial labour market establishes an optimal compensation contract. This study contrasts both hypotheses and presents evidence that the level of directors’ pay in Swiss corporations is to be explained by “optimal contracts” and by managerial power. We give evidence to which degree the two explanations are valid.
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Kalife, Aymeric, Gabriela López Ruiz, Saad Mouti, and Xiaolu Tan. "Optimal behavior strategy in the GMIB product." Insurance Markets and Companies 9, no. 1 (September 26, 2018): 41–69. http://dx.doi.org/10.21511/ins.09(1).2018.05.
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Guaranteed Minimum Income benefit are variable annuities contract, which offer the policyholder the possibility to con- vert the guarantee level into an annuities income for life. This paper focuses on the optimal customer behavior assuming the maximization of the discounted expected future cash flows over the full life of the contract duration. Using convenient scaling properties of the contract value enables to reduce the complexity (dimension) of the problem and to characterize the policyholder’s decision as a function of the contract moneyness across four main choices: zero withdrawals, guaranteed withdrawals, lapse and the income period election. Sensitivities to key drivers such as the market volatility, the interest rate and the roll-up rate illustrate how crucial are not only the environment, but also the product design features, in order to ensure a fair and robust pricing for both customer and life insurer. In particular, the authors find that most empirical contracts are usually underpriced compared to mean optimal behavior pricing, which empirically translated into multiple updates of behavior assumptions and re-reserving by life insurers in the recent years.
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Kuang, Xi (Jason), and Donald V. Moser. "Reciprocity and the Effectiveness of Optimal Agency Contracts." Accounting Review 84, no. 5 (September 1, 2009): 1671–94. http://dx.doi.org/10.2308/accr.2009.84.5.1671.
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ABSTRACT: Optimal agency contracts pay the lowest wage necessary to induce profit-maximizing effort. Employees could view such contracts as violating reciprocity because, relative to more reciprocal contracts, they offer a lower wage in exchange for higher effort. Consequently, the profit-maximizing effectiveness of optimal contracts could be impaired if employees reject them or reduce their effort. We use experimental labor markets to examine (1) how employees respond to an optimal versus a suboptimal reciprocity-based contract when each contract is the only contract available, (2) how employees respond to these contracts when firms choose which one to offer, (3) whether the firms' contract offers depend on employees' reactions to those offers, and (4) how employees and firms react to a hybrid contract that incorporates features of both contracts. We find that the optimal contract is less effective than agency analysis predicts, the reciprocity-based contract can be equally effective, and the hybrid contract dominates a market in which all three contracts are available. Implications of these results are discussed.
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Iskenderov, A. D., and R. K. Tagiyev. "OPTIMAL CONTROL PROBLEM WITH CONTROLS IN COEFFICIENTS OF QUASILINEAR ELLIPTIC EQUATION." Eurasian Journal of Mathematical and Computer Applications 1, no. 1 (2013): 21–38. http://dx.doi.org/10.32523/2306-3172-2013-1-2-21-38.
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Kumagae, Keiki. "Optimal Task Design for Intrinsically Motivated Workers with an Incomplete Contract." Journal of National Development 31, no. 1 (July 1, 2018): 29–38. http://dx.doi.org/10.29070/31/57434.
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Lach, Saul, Zvika Neeman, and Mark Schankerman. "Government Financing of R&D: A Mechanism Design Approach." American Economic Journal: Microeconomics 13, no. 3 (August 1, 2021): 238–72. http://dx.doi.org/10.1257/mic.20190053.
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We study how to design an optimal government loan program for risky R&D projects with positive externalities. With adverse selection, the optimal government contract involves a high interest rate but nearly zero cofinancing by the entrepreneur. This contrasts sharply with observed loan schemes. With adverse selection and moral hazard, allowing for two levels of effort by the entrepreneur, the optimal policy consists of a menu of at most two contracts, one with high interest and zero self-financing and a second with a lower interest plus cofinancing. Calibrated simulations assess welfare gains from the optimal policy, observed loan programs, and a direct subsidy to private venture capital firms. The gains vary with the size of the externalities, the cost of public funds, and the effectiveness of the private venture capital industry. (JEL D82, D86, G24, L26, O31, G32, H81)
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Bock, Igor, and Ján Lovíšek. "Optimal control problems for variational inequalities with controls in coefficients and in unilateral constraints." Applications of Mathematics 32, no. 4 (1987): 301–14. http://dx.doi.org/10.21136/am.1987.104261.
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Jiang, Baojun, and Hongyan Shi. "Intercompetitor Licensing and Product Innovation." Journal of Marketing Research 55, no. 5 (October 2018): 738–51. http://dx.doi.org/10.1177/0022243718802846.
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This article explores how intercompetitor licensing between an incumbent and an entrant affects market competition and the entrant’s optimal product quality. In the model, the incumbent has a noncore technology that is used for the noncore attribute of the final product, and the entrant has a new core technology to introduce a new, higher-quality product. For the noncore technology of its product, the entrant can either license it from the incumbent or develop it in-house. The authors show that a royalty licensing contract of the noncore technology between the incumbent and the entrant has a competition-alleviating effect. More important, the effect of such licensing on the entrant’s optimal quality depends on whether its core technology can significantly or only incrementally increase its product quality over the incumbent’s product quality. The royalty contract will tend to increase the entrant’s optimal quality when the entrant’s core technology can offer a significant quality improvement over the incumbent’s. By contrast, if the entrant’s technology can raise its product quality only incrementally over the incumbent’s product quality, the royalty contract will tend to reduce the entrant’s optimal quality. A wide range of royalty licensing contracts are mutually acceptable; the incumbent (entrant) can benefit from such a contract even when the entrant pays a total royalty fee that is lower (higher) than its alternative research-and-development cost. These results hold even when the incumbent endogenously chooses its royalty licensing fee. The main results are robust to several alternative modeling assumptions (e.g., alternative game sequence, endogenous quality decision by the incumbent, alternative licensing contract).
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Levin, Jonathan. "Relational Incentive Contracts." American Economic Review 93, no. 3 (May 1, 2003): 835–57. http://dx.doi.org/10.1257/000282803322157115.
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Standard incentive theory models provide a rich framework for studying informational problems but assume that contracts can be perfectly enforced. This paper studies the design of self-enforced relational contracts. I show that optimal contracts often can take a simple stationary form, but that self-enforcement restricts promised compensation and affects incentive provision. With hidden information, it may be optimal for an agent to supply the same inefficient effort regardless of cost conditions. With moral hazard, optimal contracts involve just two levels of compensation. This is true even if performance measures are subjective, in which case optimal contracts terminate following poor performance.
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Song, Ting, Andrew F. Laine, Qun Chen, Henry Rusinek, Louisa Bokacheva, Ruth P. Lim, Gerhard Laub, Randall Kroeker, and Vivian S. Lee. "Optimalk-space sampling for dynamic contrast-enhanced MRI with an application to MR renography." Magnetic Resonance in Medicine 61, no. 5 (May 2009): 1242–48. http://dx.doi.org/10.1002/mrm.21901.
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Cao, Dan, and Roger Lagunoff. "Optimal Collateralized Contracts." American Economic Journal: Microeconomics 12, no. 4 (November 1, 2020): 45–74. http://dx.doi.org/10.1257/mic.20170179.
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We examine the role of collateral in a dynamic model of optimal credit contracts in which a borrower values both housing and nonhousing consumption. The borrower’s private information about his income is the only friction. An optimal contract is collateralized when in some state, some portion of the borrower’s net worth is forfeited to the lender. We show that optimal contracts are always collateralized. The total value of forfeited assets is decreasing in income, highlighting the role of collateral as a deterrent to manipulation. Some assets—those that generate consumable services—will necessarily be collateralized, while others may not be. Endogenous default arises when the borrower’s initial wealth is low, as with subprime borrowers, and/or his future earnings are highly variable. (JEL D82, D86, G21, G51)
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Husniah, Hennie, Udjianna S. Pasaribu, Andi Cakravastia, and Bermawi P. Iskandar. "Two Dimensional Maintenance Contracts for a Fleet of Dump Trucks Used in Mining Industry." Applied Mechanics and Materials 660 (October 2014): 1026–31. http://dx.doi.org/10.4028/www.scientific.net/amm.660.1026.
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In this paper, we study two dimensional maintenance contracts for a fleet of dump trucks operated in a mining industry. The two-dimensional contract is charaterised by two parameters (i.e. age and usage limits) which define a region. Two different shapes of the contract region are studied, where one region favors the customer, and the other the service provider. The maintenance service contracts studied is the performance based contract which offers incentives to motivate a service provider (an agent) to increase the equipment’s performance beyond the target. This in turn gives benefit for both the owner of the trucks and the agent of service contract. The decision problem under study is that an agent offers several two dimensional service contract options and the owner of the trucks has to select the optimal option. We use a Nash game theory formulation in order to obtain a win-win solution – i.e. the optimal strategy (pricing structure) for the agent and the optimal option for the owner.
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Guriev, Sergei, and Dmitriy Kvasov. "Contracting on Time." American Economic Review 95, no. 5 (November 1, 2005): 1369–85. http://dx.doi.org/10.1257/000282805775014452.
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The paper shows how time considerations, especially those concerning contract duration, affect incomplete contract theory. Time is not only a dimension along which the relationship unfolds, but also a continuous verifiable variable that can be included in contracts. We consider a bilateral trade setting where contracting, investment, trade, and renegotiation take place in continuous time. We show that efficient investment can be induced either through a sequence of constantly renegotiated fixed-term contracts; or through a renegotiation-proof “evergreen” contract—a perpetual contract that allows unilateral termination with advance notice. We provide a detailed analysis of properties of optimal contracts.
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Skottun, B. C., A. Bradley, G. Sclar, I. Ohzawa, and R. D. Freeman. "The effects of contrast on visual orientation and spatial frequency discrimination: a comparison of single cells and behavior." Journal of Neurophysiology 57, no. 3 (March 1, 1987): 773–86. http://dx.doi.org/10.1152/jn.1987.57.3.773.
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We have compared the effects of contrast on human psychophysical orientation and spatial frequency discrimination thresholds and on the responses of individual neurons in the cat's striate cortex. Contrast has similar effects on orientation and spatial frequency discrimination: as contrast is increased above detection threshold, orientation and spatial frequency discrimination performance improves but reaches maximum levels at quite low contrasts. Further increases in contrast produce no further improvements in discrimination. We measured the effects of contrast on response amplitude, orientation and spatial frequency selectivity, and response variance of neurons in the cat's striate cortex. Orientation and spatial frequency selectivity vary little with contrast. Also, the ratio of response variance to response mean is unaffected by contrast. Although, in many cells, response amplitude increases approximately linearly with log contrast over most of the visible range, some cells show complete or partial saturation of response amplitude at medium contrasts. Therefore, some cells show a clear increase in slope of the orientation and spatial frequency tuning functions with increasing contrast, whereas in others the slopes reach maximum values at medium contrasts. Using receiver operating characteristic analysis, we estimated the minimum orientation and spatial frequency differences that can be signaled reliably as a response change by an individual cell. This analysis shows that, on average, the discrimination of orientation or spatial frequency improves with contrast at low contrasts more than at higher contrasts. Using the optimal stimulus for each cell, we estimated the contrast threshold of 48 neurons. Most cells had contrast thresholds below 5%. Thresholds were only slightly higher for nonoptimal stimuli. Therefore, increasing the contrast of sinusoidal gratings above approximately 10% will not produce large increases in the number of responding cells. The observed effects of contrast on the response characteristics of nonsaturating cortical cells do not appear consistent with the psychophysical results. Cells that reach their maximum response at low-to-medium contrasts may account for the contrast independence of psychophysical orientation and spatial frequency discrimination thresholds at medium and high contrasts.
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TAILBY, CHRIS, SAMUEL G. SOLOMON, JONATHAN W. PEIRCE, and ANDREW B. METHA. "Two expressions of “surround suppression” in V1 that arise independent of cortical mechanisms of suppression." Visual Neuroscience 24, no. 1 (January 2007): 99–109. http://dx.doi.org/10.1017/s0952523807070022.
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The preferred stimulus size of a V1 neuron decreases with increases in stimulus contrast. It has been supposed that stimulus contrast is the primary determinant of such spatial summation in V1 cells, though the extent to which it depends on other stimulus attributes such as orientation and spatial frequency remains untested. We investigated this by recording from single cells in V1 of anaesthetized cats and monkeys, measuring size-tuning curves for high-contrast drifting gratings of optimal spatial configuration, and comparing these curves with those obtained at lower contrast or at sub-optimal orientations or spatial frequencies. For drifting gratings of optimal spatial configuration, lower contrasts produced less surround suppression resulting in increases in preferred size. High contrast gratings of sub-optimal spatial configuration produced more surround suppression than optimal low-contrast gratings, and as much or more surround suppression than optimal high-contrast gratings. For sub-optimal spatial frequencies, preferred size was similar to that for the optimal high-contrast stimulus, whereas for sub-optimal orientations, preferred size was smaller than that for the optimal high-contrast stimulus. These results indicate that, while contrast is an important determinant of spatial summation in V1, it is not the only determinant. Simulation of these experiments on a cortical receptive field modeled as a Gabor revealed that the small preferred sizes observed for non-preferred stimuli could result simply from linear filtering by the classical receptive field. Further simulations show that surround suppression in retinal ganglion cells and LGN cells can be propagated to neurons in V1, though certain properties of the surround seen in cortex indicate that it is not solely inherited from earlier stages of processing.
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Hou, Jing, and Xiangpei Hu. "Comparative Studies of Three Backup Contracts Under Supply Disruptions." Asia-Pacific Journal of Operational Research 32, no. 02 (March 30, 2015): 1550006. http://dx.doi.org/10.1142/s0217595915500062.
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We focus our research on a supply chain involving one buyer and two independent suppliers of the same product. The main supplier is prone to supply disruption and recurrent supply uncertainty, and the backup supplier is perfectly reliable but supply goods at higher prices. Three kinds of backup contracts between the buyer and the backup supplier are investigated to mitigate supply risks: A capacity reservation contract, a make-to-order contract, and a buy-back contract. Models are developed to study how the buyer's expected profit and optimal decisions related to each contract change with the supply risks. We also examine the sensitivity of various cost parameters on the optimal decisions, and compare the values of three backup contracts for the buyer. Furthermore, we present how these results differ from those obtained in the analysis with demand uncertainty considered. Our study provides managerial insights into the positive effects of different backup contracts on the buyer's expected profit in the events of unexpected disruption.
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Baker, James F., Linda C. Kratz, Gary R. Stevens, and James H. Wible. "Pharmacokinetics and Safety of the MRI Contrast Agent Gadoversetamide Injection (Optimark) in Healthy Pediatric Subjects." Investigative Radiology 39, no. 6 (June 2004): 334–39. http://dx.doi.org/10.1097/01.rli.0000124455.11402.52.
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Battaglini, Marco. "Long-Term Contracting with Markovian Consumers." American Economic Review 95, no. 3 (May 1, 2005): 637–58. http://dx.doi.org/10.1257/0002828054201369.
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To study how a firm can capitalize on a long-term customer relationship, we characterize the optimal contract between a monopolist and a consumer whose preferences follow a Markov process. The optimal contract is nonstationary and has infinite memory, but is described by a simple state variable. Under general conditions, supply converges to the efficient level for any degree of persistence of the types and along any history, though convergence is history-dependent. In contrast, as with constant types, the optimal contract can be renegotiation-proof, even with highly persistent types. These properties provide insights into the optimal ownership structure of the production technology.
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Yang, Honglin, Erbao Cao, Kevin Jiang Lu, and Guoqing Zhang. "Optimal contract design for dual-channel supply chains under information asymmetry." Journal of Business & Industrial Marketing 32, no. 8 (October 2, 2017): 1087–97. http://dx.doi.org/10.1108/jbim-01-2016-0007.
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Purpose The aim of this paper is to investigate the effect of information asymmetry on revenue sharing contracts and performance in a dual-channel supply chain. First, the authors model the optimum revenue sharing contract in a dual-channel supply chain under both the full information case and the asymmetric information case. Second, they contrast the optimal decisions of a dual-channel supply chain between the full information case and the asymmetric information case. Third, they explore the impact of asymmetric cost information on the performance of a dual-channel supply chain and investigate the information value. Design/methodology/approach The authors present two main issues associated with revenue sharing contracts to alleviate manufacturer–retailer conflicts in a dual-channel supply chain. In the first issue, a revenue sharing contract is designed in a dual-channel supply chain under asymmetric cost information conditions, based on the principal-agent model. In the second issue, an optimal revenue sharing contract under full information conditions, based on the Stackelberg game is discussed. They explore the impact of asymmetric cost information on the performance of a dual-channel supply chain and investigate the information value based on comparative static analysis. Findings First, the direct sale price is unchanged and independent of the retailer’s cost construct, but the wholesale price increases and the retail sale price does not decrease under asymmetric cost information. The information asymmetry leads to higher direct sale demand and lower retail sale demand. Second, information asymmetry is beneficial for the retailer, but imposes inefficiency on the manufacturer and the whole supply chain. Third, the performance of the dual-channel supply chain is improved if the retailer’s cost information is shared and the dual-channel supply chain reaches coordination. The retailer is willing to share its cost information if the lump sum side payment that the manufacturer offers can make up the retailer’s reduced profit due to sharing this information. Originality/value The authors proposed a contract menus design model in a dual-channel supply chain. They examine how information asymmetry affects optimal policies and performance. They compared the optimal policies under symmetric information and asymmetric information. Conditions under which the partners prefer sharing information are identified. They quantified the information value from the points of partners and the whole system.
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Chen, Xue, Bo Li, and Simin An. "Option contract design for supply chains under asymmetric cost information." Kybernetes 48, no. 5 (May 7, 2019): 835–60. http://dx.doi.org/10.1108/k-12-2017-0495.
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Purpose A lack of visibility into the manufacturer’s production cost information impedes a retailer’s ability to maximize her own profits, especially when market demand is uncertain. The purpose of this paper is to investigate the use of an option contract within a one-period two-echelon supply chain in the presence of asymmetric cost information. Design/methodology/approach Based on the principal-agent model, the retailer, acting as a Stackelberg leader, offers a menu of option contracts to mitigate the risk of uncertain demand and reveal asymmetric production cost information. The optimal contract in asymmetric and symmetric information scenarios is derived. Finally, the impact of production costs on the optimal contracts and the actors’ profits is explored by numerical experiments. Findings By comparing the optimal equilibrium solutions in two scenarios, the authors show that asymmetric cost information has a large impact on the optimal option contract and profits. In addition, information rent is affected by the type differential. The results prove that the level of information asymmetry plays a vital role in option contracts and profits. Originality/value Different from the existing literature on private demand information, this paper considers a supply chain with asymmetric cost information in the context of option contracts. Interestingly, not only the production cost but also the probability of a low production cost can affect the option strike price. In addition, from the perspective of the manufacturer, a high cost does not always bring a high information rent. These findings can provide some guidance to decision-makers.
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Zhu, Yingjun, Zhitong Gao, and Ruihai Li. "Sustainable and Optimal “Uniqueness” Contract in Public-Private Partnership Projects of Transportation Infrastructure." Discrete Dynamics in Nature and Society 2020 (December 18, 2020): 1–14. http://dx.doi.org/10.1155/2020/6664405.
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To control the “uniqueness” risk in Public-Private Partnership (PPP) projects of transportation infrastructure, we design a simplified “uniqueness” contract model by incorporating the impact of the initial investment which is based on the Bertrand model. The nonlinear programming method is adopted to derive the optimal “uniqueness” contracts for incumbent private capital, the public, and the social welfare, respectively. The simulation results show that the achievement of the optimal “uniqueness” contract is essentially the result of a compromise between the private capital, the public, and social welfare. The extent to which such a contract reduces the probability of “uniqueness” risk mainly depends on the equilibrium relation between the interests of private capital and the public. The initial investment is not related to the government default when the contract does not take into account the interests of the private capital. Furthermore, the “uniqueness” contracts between private capital and the government are mainly for anticompetitive purpose in the PPP market of transportation infrastructure. Unless the contract terms focus on the improvement of social welfare, entering a “uniqueness” contract will cause social welfare losses.
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Friedman, Mark A. "Contrast Echocardiography." Einstein Journal of Biology and Medicine 21, no. 1 (March 2, 2016): 2. http://dx.doi.org/10.23861/ejbm200421443.
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Ultrasound contrast agents are widely used in clinical practice for left ventricle opacification in sub-optimal echocardiograms. Recently, significant research has focused on the use of contrast echocardiography as a non invasive means to evaluate myocardial perfusion. Advances in contrast agents as well as ultrasound technology have enabled investigations into myocardial contrast echocardiography as a possible alternative to nuclear imaging studies. This review will focus on the development and current uses of contrast echocardiography, as well as future indications, including myocardial perfusion and risk stratification following myocardial infarction.
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Szabó, Dávid Zoltán, and Randall Martyr. "Real option valuation of a decremental regulation service provided by electricity storage." Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences 375, no. 2100 (July 10, 2017): 20160300. http://dx.doi.org/10.1098/rsta.2016.0300.
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This paper is a quantitative study of a reserve contract for real-time balancing of a power system. Under this contract, the owner of a storage device, such as a battery, helps smooth fluctuations in electricity demand and supply by using the device to increase electricity consumption. The battery owner must be able to provide immediate physical cover, and should therefore have sufficient storage available in the battery before entering the contract. Accordingly, the following problem can be formulated for the battery owner: determine the optimal time to enter the contract and, if necessary, the optimal time to discharge electricity before entering the contract. This problem is formulated as one of optimal stopping, and is solved explicitly in terms of the model parameters and instantaneous values of the power system imbalance. The optimal operational strategies thus obtained ensure that the battery owner has positive expected economic profit from the contract. Furthermore, they provide explicit conditions under which the optimal discharge time is consistent with the overall objective of power system balancing. This paper also carries out a preliminary investigation of the ‘lifetime value’ aggregated from an infinite sequence of these balancing reserve contracts. This lifetime value, which can be viewed as a single project valuation of the battery, is shown to be positive and bounded. Therefore, in the long run such reserve contracts can be beneficial to commercial operators of electricity storage, while reducing some of the financial and operational risks in power system balancing. This article is part of the themed issue ‘Energy management: flexibility, risk and optimization’.
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Hao, Yifei, Wei Chen, and Hong Yang. "Collaborative Innovation with Dynamic Incentive Contracts in a Supply Chain." Mathematical Problems in Engineering 2020 (April 25, 2020): 1–19. http://dx.doi.org/10.1155/2020/6538653.
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The collection and sharing of consumers’ knowledge by retailers can help manufacturers improve the innovation level of products, thereby improving the performance of supply chain. However, due to the cost of collecting consumers’ knowledge, the wholesale price contract can no longer coordinate supply chain members effectively. It is necessary to study the problem how the retailers are encouraged to make more efforts for the cooperative innovation with manufacturers. This paper introduces two dynamic incentive contracts for improving collaborative innovation level in a two-player supply chain, and the impacts of these contracts on supply chain’s performance are investigated, by using a Stackelberg differential game model. The manufacturer, as a Stackelberg leader, determines the R&D investment while the retailer is responsible for the retail price and the efforts in collection of the consumer’s information (or preference) to the products. The model incorporates a wholesale price contract and two incentive contracts to better understand how the manufacturer can facilitate the retailer’s efforts in the collection of consumer’s information and increase the profits of the members of supply chain. Our results suggest that the optimal profit of the supply chain, the retailer’s efforts in the collection of consumer’s knowledge, the retail price, and the innovation level under the reward incentive contract are higher than their counterparts in other contracts. In particular, the retailer’s optimal effort under the reward incentive contract is even higher than the one in the centralized decision scenario. However, if the manufacturer commits an effort target to the retailer, it shows that the retailer’s optimal effort is independent of the target. The manufacturer’s optimal R&D investments are constants in the three contracts under the dynamic setting. Furthermore, numerical simulations show that the effort target has little impact on profits of the supply chain although it affects the decision making of supply chain members to some extent, whereas the retailer’s marginal reward offered by the manufacturer influences the innovation level of product and the supply chain’s profit significantly.
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Gersbach, Hans, Volker Hahn, and Yulin Liu. "FORWARD GUIDANCE CONTRACTS." Macroeconomic Dynamics 23, no. 8 (July 13, 2018): 3386–423. http://dx.doi.org/10.1017/s1365100518000093.
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We examine “Forward Guidance Contracts,” which penalize central bankers for choosing high interest rates. We integrate those contracts into the New Keynesian Framework and show that they can be used to overcome a liquidity trap. Moreover, although the government takes only a share of the social benefits into account when it has to decide whether to offer the contract, we demonstrate that for plausible parameter values the government will always find it desirable to offer the contract in a liquidity trap but not in normal times. Finally, we show that the optimal duration of such contracts is typically very short.
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Golubin, A. Y. "Pareto-optimal Contracts in an Insurance Market." ASTIN Bulletin 35, no. 02 (November 2005): 363–78. http://dx.doi.org/10.2143/ast.35.2.2003458.
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In distinction to the Borch’s model of a reinsurance market, this paper treats the problem of optimal risk exchange in an insurance market where treaties are allowed between the insurer and each insured only, not among insureds themselves. A characterization of the Pareto-optimal contract is found. It is shown that the indemnity function in the contract is of a coinsurance kind. We also present a way of finding Pareto-optimal contracts under individual rationality constraints. The obtained results are compared with those of the known model of risk exchange in a reinsurance market.
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Golubin, A. Y. "Pareto-optimal Contracts in an Insurance Market." ASTIN Bulletin 35, no. 2 (November 2005): 363–78. http://dx.doi.org/10.1017/s051503610001429x.
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In distinction to the Borch’s model of a reinsurance market, this paper treats the problem of optimal risk exchange in an insurance market where treaties are allowed between the insurer and each insured only, not among insureds themselves. A characterization of the Pareto-optimal contract is found. It is shown that the indemnity function in the contract is of a coinsurance kind. We also present a way of finding Pareto-optimal contracts under individual rationality constraints. The obtained results are compared with those of the known model of risk exchange in a reinsurance market.
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Battigalli, Pierpaolo, and Giovanni Maggi. "Rigidity, Discretion, and the Costs of Writing Contracts." American Economic Review 92, no. 4 (August 1, 2002): 798–817. http://dx.doi.org/10.1257/00028280260344470.
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In this paper we model contract incompleteness “from the ground up,” as arising endogenously from the costs of describing the environment and the parties' behavior. Optimal contracts may exhibit two forms of incompleteness: discretion, meaning that the contract does not specify the parties' behavior with sufficient detail; and rigidity, meaning that the parties' obligations are not sufficiently contingent on the external state. The model sheds light on the determinants of rigidity and discretion in contracts, and yields rich predictions regarding the impact of changes in the exogenous parameters on the degree and form of contract incompleteness.
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Hietanen, M. A., N. A. Crowder, and M. R. Ibbotson. "Contrast Gain Control Is Drift-Rate Dependent: An Informational Analysis." Journal of Neurophysiology 97, no. 2 (February 2007): 1078–87. http://dx.doi.org/10.1152/jn.00991.2006.
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Neurons in the visual cortex code relative changes in illumination (contrast) and adapt their sensitivities to the visual scene by centering the steepest regions of their sigmoidal contrast response functions (CRFs: spike rate as a function of contrast) on the prevailing contrast. The influence of this contrast gain control has not been reported at nonoptimal drift rates. We calculated the Fisher information contained in the CRFs of halothane-anesthetized cats. Fisher information gives a measure of the accuracy of contrast representations based on the ratio of the square of the steepness of the CRF and the spike-rate dependency of the spiking variance. Variance increases with spike rate, so Fisher information is maximal where the CRF is steep and spike rates are low. Here, we show that the contrast at which the maximal Fisher information (CMFI) occurs for each adapting drift rate is at a fixed level above the adapting contrast. For adapting contrasts of 0 to 0.32 the relationship between CMFI and adapting contrast is well described by a straight line with a slope close to 1. The intercept of this line on the CMFI-axis is drift-rate dependent, although the slope is not. At high drift rates relative to each cell's peak the CMFI offset is higher than that for low drift rates. The results show that the contrast coding strategy in visual cortex maximizes accuracy for contrasts above the prevailing contrast in the environment for all drift rates. We argue that tuning the system for accuracy at contrasts above the prevailing value is optimal for viewing natural scenes.
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Josephy, Norman, Lucia Kimball, and Victoria Steblovskaya. "Optimal Hedging and Pricing of Equity-Linked Life Insurance Contracts in a Discrete-Time Incomplete Market." Journal of Probability and Statistics 2011 (2011): 1–23. http://dx.doi.org/10.1155/2011/850727.
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We present a method of optimal hedging and pricing of equity-linked life insurance products in an incomplete discrete-time financial market. A pure endowment life insurance contract with guarantee is used as an example. The financial market incompleteness is caused by the assumption that the underlying risky asset price ratios are distributed in a compact interval, generalizing the assumptions of multinomial incomplete market models. For a range of initial hedging capitals for the embedded financial option, we numerically solve an optimal hedging problem and determine a risk-return profile of each optimal non-self-financing hedging strategy. The fair price of the insurance contract is determined according to the insurer's risk-return preferences. Illustrative numerical results of testing our algorithm on hypothetical insurance contracts are documented. A discussion and a test of a hedging strategy recalibration technique for long-term contracts are presented.
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Dhingra, Narender K., Yen-Hong Kao, Peter Sterling, and Robert G. Smith. "Contrast Threshold of a Brisk-Transient Ganglion Cell In Vitro." Journal of Neurophysiology 89, no. 5 (May 1, 2003): 2360–69. http://dx.doi.org/10.1152/jn.01042.2002.
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We measured the contrast threshold for mammalian brisk-transient ganglion cells in vitro. Spikes were recorded extracellularly in the intact retina (guinea pig) in response to a spot with sharp onset, flashed for 100 ms over the receptive field center. Probability density functions were constructed from spike responses to stimulus contrasts that bracketed threshold. Then an “ideal observer” (IO) compared additional trials to these probability distributions and decided, using a single-interval, two-alternative forced-choice procedure, which contrasts had most likely been presented. From these decisions we constructed neurometric functions that yielded the threshold contrast by linear interpolation. Based on the number of spikes in a response, the IO detected contrasts as low as 1% [4.2 ± 0.4% (SE); n = 35]; based on the temporal pattern of spikes, the IO detected contrasts as low as 0.8% (2.8 ± 0.2%). Contrast increments above a very low “basal contrast” were discriminated with greater sensitivity than they were detected against the background. Performance was optimal near 37°C and declined with a Q 10 of about 2, similar to that of retinal metabolism. By the method used by previous in vivo studies of brisk-transient cells, our most sensitive cells had similar thresholds. The in vitro measurements thus provide an important benchmark for comparing sensitivity of neurons upstream (cone and bipolar cell) and downstream to assess efficiency of retinal and central circuits.
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Battaglini, Marco, and Rohit Lamba. "Optimal dynamic contracting: The first‐order approach and beyond." Theoretical Economics 14, no. 4 (2019): 1435–82. http://dx.doi.org/10.3982/te2355.
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We explore the conditions under which the “first‐order approach” (FO approach) can be used to characterize profit maximizing contracts in dynamic principal–agent models. The FO approach works when the resulting FO‐optimal contract satisfies a particularly strong form of monotonicity in types, a condition that is satisfied in most of the solved examples studied in the literature. The main result of our paper is to show that except for nongeneric choices of the stochastic process governing the types' evolution, monotonicity and, more generally, incentive compatibility are necessarily violated by the FO‐optimal contract if the frequency of interactions is sufficiently high (or, equivalently, if the discount factor, time horizon, and persistence in types are sufficiently large). This suggests that the applicability of the FO approach is problematic in environments in which expected continuation values are important relative to per period payoffs. We also present conditions under which a class of incentive compatible contracts that can be easily characterized is approximately optimal.
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Marcet, Albert, and Ramon Marimon. "Recursive Contracts." Econometrica 87, no. 5 (2019): 1589–631. http://dx.doi.org/10.3982/ecta9902.
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We obtain a recursive formulation for a general class of optimization problems with forward‐looking constraints which often arise in economic dynamic models, for example, in contracting problems with incentive constraints or in models of optimal policy. In this case, the solution does not satisfy the Bellman equation. Our approach consists of studying a recursive Lagrangian. Under standard general conditions, there is a recursive saddle‐point functional equation (analogous to a Bellman equation) that characterizes a recursive solution to the planner's problem. The recursive formulation is obtained after adding a co‐state variable μ t summarizing previous commitments reflected in past Lagrange multipliers. The continuation problem is obtained with μ t playing the role of weights in the objective function. Our approach is applicable to characterizing and computing solutions to a large class of dynamic contracting problems.
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Wang, Li Li, and Rong Zhong Wang. "Impact of Risk Aversion on Optimal Decisions in Supply Contracts with Bidirectional Options." Applied Mechanics and Materials 235 (November 2012): 261–66. http://dx.doi.org/10.4028/www.scientific.net/amm.235.261.
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Supply contracts with options have been proposed to provide flexibility in supply chains with high demand uncertainties. In this paper, we consider a flexible supply contract model with bidirectional options in which a risk-averse retailer subject to high uncertain market demand and ordering decisions. We use the Conditional Value-at-Risk, a risk measure commonly used in finance, as a decision criterion and derive the retailer's optimal ordering decisions equations. In particular, we obtain closed-form formulae to describe the retailer's optimal behavior when the demand is uniformly distributed. Numerical examples analyze that how the risk aversion and contract parameters affect the retailer's optimal decisions. We also numerically prove that bidirectional options improve the retailer's profit under risk aversions, compared with the wholesale price contract.
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Wei, Ying, and Liyang Xiong. "Contracting Fashion Products Supply Chains When Demand Is Dependent on Price and Sales Effort." Mathematical Problems in Engineering 2015 (2015): 1–7. http://dx.doi.org/10.1155/2015/161486.
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This paper investigates optimal decisions in a two-stage fashion product supply chain under two specified contracts: revenue-sharing contract and wholesale price contract, where demand is dependent on retailing price and sales effort level. Optimal decisions and related profits are analyzed and further compared among the cases where the effort investment fee is determined and undertaken either by the retailer or the manufacturer. Results reveal that if the retailer determines the effort investment level, she would be better off under the wholesale price contract and would invest more effort. However, if the manufacturer determines the effort level, he prefers to the revenue-sharing contract most likely if both parties agree on consignment.
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Guigou, Jean-Daniel. "Contrats de dette participative en environnement stratégique." Articles 78, no. 1 (March 11, 2004): 5–17. http://dx.doi.org/10.7202/007242ar.
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Résumé Cet article considère un jeu en quantités avec financement des capacités de production, dans lequel la forme des contrats financiers constitue la variable stratégique pertinente des entreprises. Le contrat optimal se distingue du contrat de dette classique par la présence d’une clause de participation : l’intérêt versé à la banque comprend une partie fixe et une partie variable, indexée sur les profits de la firme. Le contrat de dette participative s’avère proconcurrentiel à l’équilibre symétrique du jeu, au sens où il incite à la concurrence. En revanche, dès lors qu’on introduit un avantage de premier décideur à l’étape contractuelle, il peut être une source de barrières stratégiques à l’entrée et donc avoir des effets anticoncurrentiels.
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Luo, Jiarong, Xiaolin Zhang, and Xianglan Jiang. "Multisources Risk Management in a Supply Chain under Option Contracts." Mathematical Problems in Engineering 2019 (July 4, 2019): 1–12. http://dx.doi.org/10.1155/2019/7482584.
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Uncertainties in product demand, component yield, and spot price are keys to many industrial settings and they are usually explicitly incorporated. This paper develops an analytical framework to value option contracts in hedging the risks in a supply chain consisting of a component supplier with random yield and a manufacturer facing stochastic demand for end products. The manufacturer can obtain the components from the supplier through firm order contracts and option contracts. Apart from the contract market, there is a spot market in which both the manufacturer and the supplier can buy or sell the components. Analytical expressions for the optimal ordering and production policies are derived. Our study shows that the manufacturer and the supplier can effectively deal with the risks they involve by adopting option contracts. However, we find that the supply chain cannot be coordinated by the traditional option contract. To coordinate such system, we propose a protocol to be combined with the option contract. Finally, the explicit condition for coordination under the proposed contracts is identified.
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Salant, Yuval, and Ron Siegel. "Contracts with Framing." American Economic Journal: Microeconomics 10, no. 3 (August 1, 2018): 315–46. http://dx.doi.org/10.1257/mic.20160230.
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We study a model of contracts in which a profit-maximizing seller uses framing to influence buyers’ purchasing behavior. Framing temporarily affects how buyers evaluate different products, and buyers can renege on their purchases after the framing effect wears off. We characterize the optimal contracts with framing and their welfare properties in several settings. Framing that is not too strong reduces total welfare in regulated markets with homogenous buyers, but increases total welfare in markets with heterogenous buyers when the proportion of buyers with low willingness to pay is small. (JEL D11, D82, D86)
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Jakobsen, Alexander M. "A Model of Complex Contracts." American Economic Review 110, no. 5 (May 1, 2020): 1243–73. http://dx.doi.org/10.1257/aer.20190283.
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I study a mechanism design problem involving a principal and a single, boundedly rational agent. The agent transitions among belief states by combining current beliefs with up to K pieces of information at a time. By expressing a mechanism as a complex contract—a collection of clauses, each providing limited information about the mechanism—the principal manipulates the agent into believing truthful reporting is optimal. I show that such bounded rationality expands the set of implementable functions and that optimal contracts are robust not only to variation in K, but to several plausible variations on the agent’s cognitive procedure. (JEL D82, D86)
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Zhu, John Y. "A Foundation for Efficiency Wage Contracts." American Economic Journal: Microeconomics 10, no. 4 (November 1, 2018): 248–88. http://dx.doi.org/10.1257/mic.20160222.
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In many jobs, the worker generates only subjective performance measures privately observed by the employer, and contracts must rely on employer reports about these measures. This setting is a game with private monitoring, and prior work suggests that the optimal contract may be complex and non-recursive. I introduce a novel equilibrium refinement and show that the optimal contract simplifies to an efficiency wage contract: The worker receives a wage above his outside option and reports take a pass-fail form. Each report depends only on performance since the previous report, and effort incentives are provided purely through the threat of termination. (JEL D86, J41)
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Xu, Minli, Qiao Wang, and Linhan Ouyang. "Coordinating Contracts for Two-Stage Fashion Supply Chain with Risk-Averse Retailer and Price-Dependent Demand." Mathematical Problems in Engineering 2013 (2013): 1–12. http://dx.doi.org/10.1155/2013/259164.
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When the demand is sensitive to retail price, revenue sharing contract and two-part tariff contract have been shown to be able to coordinate supply chains with risk neutral agents. We extend the previous studies to consider a risk-averse retailer in a two-echelon fashion supply chain. Based on the classic mean-variance approach in finance, the issue of channel coordination in a fashion supply chain with risk-averse retailer and price-dependent demand is investigated. We propose both single contracts and joint contracts to achieve supply chain coordination. We find that the coordinating revenue sharing contract and two-part tariff contract in the supply chain with risk neutral agents are still useful to coordinate the supply chain taking into account the degree of risk aversion of fashion retailer, whereas a more complex sales rebate and penalty (SRP) contract fails to do so. When using combined contracts to coordinate the supply chain, we demonstrate that only revenue sharing with two-part tariff contract can coordinate the fashion supply chain. The optimal conditions for contract parameters to achieve channel coordination are determined. Numerical analysis is presented to supplement the results and more insights are gained.
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Steffensen, Mogens, and Julie Thøgersen. "PERSONAL NON-LIFE INSURANCE DECISIONS AND THE WELFARE LOSS FROM FLAT DEDUCTIBLES." ASTIN Bulletin 49, no. 1 (January 2019): 85–116. http://dx.doi.org/10.1017/asb.2018.40.
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AbstractWe view the retail non-life insurance decision from the perspective of the insured. We formalize different consumption–insurance problems depending on the flexibility of the insurance contract. For exponential utility and power utility we find the optimal flexible insurance decision or insurance contract. For exponential utility we also find the optimal position in standard contracts that are less flexible and therefore, for certain nonlinear pricing rules, lead to a welfare loss for the individual insuree compared to the optimal flexible insurance decision. For the exponential loss distribution, we quantify a significant welfare loss. This calls for product development in the retail insurance business.
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Steffensen, Mogens, and Julie ThøGersen. "PERSONAL NON-LIFE INSURANCE DECISIONS AND THE WELFARE LOSS FROM FLAT DEDUCTIBLES." ASTIN Bulletin 49, no. 01 (January 2019): 85–116. http://dx.doi.org/10.1017/asb.2019.40.
Full textAbstract:
AbstractWe view the retail non-life insurance decision from the perspective of the insured. We formalize different consumption–insurance problems depending on the flexibility of the insurance contract. For exponential utility and power utility we find the optimal flexible insurance decision or insurance contract. For exponential utility we also find the optimal position in standard contracts that are less flexible and therefore, for certain nonlinear pricing rules, lead to a welfare loss for the individual insuree compared to the optimal flexible insurance decision. For the exponential loss distribution, we quantify a significant welfare loss. This calls for product development in the retail insurance business.
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Luo, Xiaolin, and Pavel V. Shevchenko. "Fast numerical method for pricing of variable annuities with guaranteed minimum withdrawal benefit under optimal withdrawal strategy." International Journal of Financial Engineering 02, no. 03 (September 2015): 1550024. http://dx.doi.org/10.1142/s2424786315500243.
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A variable annuity contract with guaranteed minimum withdrawal benefit (GMWB) promises to return the entire initial investment through cash withdrawals during the policy life plus the remaining account balance at maturity, regardless of the portfolio performance. Under the optimal withdrawal strategy of a policyholder, the pricing of variable annuities with GMWB becomes an optimal stochastic control problem. So far in the literature these contracts have only been evaluated by solving partial differential equations (PDE) using the finite difference method. The well-known least-squares or similar Monte Carlo methods cannot be applied to pricing these contracts because the paths of the underlying wealth process are affected by optimal cash withdrawals (control variables) and thus cannot be simulated forward in time. In this paper, we present a very efficient new algorithm for pricing these contracts in the case when transition density of the underlying asset between withdrawal dates or its moments are known. This algorithm relies on computing the expected contract value through a high order Gauss–Hermite quadrature applied on a cubic spline interpolation. Numerical results from the new algorithm for a series of GMWB contract are then presented, in comparison with results using the finite difference method solving corresponding PDE. The comparison demonstrates that the new algorithm produces results in very close agreement with those of the finite difference method, but at the same time it is significantly faster; virtually instant results on a standard desktop PC.
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Pi, Jiancai. "Relational incentives in Chinese family firms." Panoeconomicus 58, no. 4 (2011): 511–24. http://dx.doi.org/10.2298/pan1104511p.
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This paper mainly discusses the choice of managerial compensation contracts in Chinese family firms. Relation or guanxi in Chinese language is an important factor that should be considered because it can bring the shirking cost to the relation-based manager and the caring cost to the owner under Chinese-style differential mode of association (?chaxu geju?). Our theoretical analysis shows that under some conditions it is optimal for the owner to choose the efficiency wage contract, and that under other conditions it is optimal for the owner to choose the share-based incentive contract.
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Teegerstrom, Trent, Gerard D’Souza, Phillip Osborne, and Kezelee Jones. "To Contract or Not to Contract? A Decision Theory and Portfolio Analysis of Cattle Contract Grazing." Agricultural and Resource Economics Review 26, no. 2 (October 1997): 205–15. http://dx.doi.org/10.1017/s1068280500002677.
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Contract grazing is compared with retained ownership of cattle using two frameworks—decision theory and portfolio analysis. The study area is West Virginia. Contracting is optimal under a wide range of price and weather scenarios and decision criteria. It also dominates other alternatives based on labor efficiency measures. The optimal portfolio consists of contract grazing and pasture rental, with the results insensitive to small changes in contract grazing returns. The decision theory and portfolio analyses are complementary; together, the two sets of results provide a comprehensive view of the optimal production alternative. Because different agents employ different decision criteria, this approach can increase the utility of results to decision makers and contribute to better decisions.
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Fuchs, William. "Contracting with Repeated Moral Hazard and Private Evaluations." American Economic Review 97, no. 4 (August 1, 2007): 1432–48. http://dx.doi.org/10.1257/aer.97.4.1432.
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A repeated moral hazard setting in which the Principal privately observes the Agent's output is studied. The optimal contract for a finite horizon is characterized, and shown to require burning of resources. These are only burnt after the worst possible realization sequence and the amount is independent of both the length of the horizon and the discount factor. For the infinite horizon. it is shown that there is no loss from restricting the analysis to contracts in which the Agent receives a constant efficiency wage and no feedback until he is fired. Furthermore, optimal contracts cannot be replicated by short-term contracts. A family of fixed interval review contracts is characterized. Longer review intervals are preferable but harder to implement. Comparative statics on the review length are carried out. Finally, these contracts are shown approximate first best if players are very patient. (JEL D82, D86)
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Liu, Weihua, Wanying Wei, Xiaoyu Yan, and Di Wang. "Supply Contract Design with Asymmetric Corporate Social Responsibility Cost Information in Service Supply Chain." Sustainability 11, no. 5 (March 6, 2019): 1408. http://dx.doi.org/10.3390/su11051408.
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Corporate social responsibility (CSR) has become the focus of the company’s daily operations and strategic choices. At present, the supply risk events caused by the CSR violations of service providers in the service supply chain are frequent, which highlight the importance of formulating appropriate contracts to constrain the CSR level of providers. In the context of asymmetric CSR cost information, this paper analyzes the optimal contract parameters of integrators when providing screening contracts or pooling contracts and compares their impact on profits and the CSR level. The information asymmetry belongs to classic principal-agent problem, and we will use the revelation principle to design the contracts and solve this problem. The results that different contracts have different effects on the CSR level of different types of providers. A low-cost provider’s CSR level is the highest when a screening contract is provided, while a high-cost provider’s CSR level reaches the peak under a pooling contract. If pursuing profit maximization, the integrator should choose to provide a screening contract. When the integrator needs to ensure a higher average level of social responsibility, a pooling contract should be chosen. The findings also show that service cost is an important factor affecting the CSR level of the provider, and only when the providers’ service cost is low, will providers actively fulfill their social responsibility.