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- Publisher Website: 10.1287/mnsc.2017.2826
- Scopus: eid_2-s2.0-85052632079
- WOS: WOS:000442656700012
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Article: Optimal contract to induce continued effort
Title | Optimal contract to induce continued effort |
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Authors | |
Keywords | Continuous time Jump process Moral hazard Dynamic Poisson Principal-agent model Optimal control |
Issue Date | 2018 |
Citation | Management Science, 2018, v. 64, n. 9, p. 4193-4217 How to Cite? |
Abstract | We consider a basic model of a risk-neutral principal incentivizing a risk-neutral agent to exert effort to raise the arrival rate of a Poisson process. The effort is costly to the agent, is unobservable to the principal, and affects the instantaneous arrival rate. Each arrival yields a constant revenue to the principal. The principal, therefore, devises a mechanism involving payments and a potential stopping time to motivate the agent to always exert effort. We formulate this problem as a stochastic optimal control model with an incentive constraint in continuous time over an infinite horizon. Although we allow payments to take general forms contingent on past arrival times, the optimal contract has a simple and intuitive structure, which depends on whether the agent is as patient as or less patient than the principal toward future income. |
Persistent Identifier | http://hdl.handle.net/10722/307244 |
ISSN | 2023 Impact Factor: 4.6 2023 SCImago Journal Rankings: 5.438 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Sun, Peng | - |
dc.contributor.author | Tian, Feng | - |
dc.date.accessioned | 2021-11-03T06:22:13Z | - |
dc.date.available | 2021-11-03T06:22:13Z | - |
dc.date.issued | 2018 | - |
dc.identifier.citation | Management Science, 2018, v. 64, n. 9, p. 4193-4217 | - |
dc.identifier.issn | 0025-1909 | - |
dc.identifier.uri | http://hdl.handle.net/10722/307244 | - |
dc.description.abstract | We consider a basic model of a risk-neutral principal incentivizing a risk-neutral agent to exert effort to raise the arrival rate of a Poisson process. The effort is costly to the agent, is unobservable to the principal, and affects the instantaneous arrival rate. Each arrival yields a constant revenue to the principal. The principal, therefore, devises a mechanism involving payments and a potential stopping time to motivate the agent to always exert effort. We formulate this problem as a stochastic optimal control model with an incentive constraint in continuous time over an infinite horizon. Although we allow payments to take general forms contingent on past arrival times, the optimal contract has a simple and intuitive structure, which depends on whether the agent is as patient as or less patient than the principal toward future income. | - |
dc.language | eng | - |
dc.relation.ispartof | Management Science | - |
dc.subject | Continuous time | - |
dc.subject | Jump process | - |
dc.subject | Moral hazard | - |
dc.subject | Dynamic | - |
dc.subject | Poisson | - |
dc.subject | Principal-agent model | - |
dc.subject | Optimal control | - |
dc.title | Optimal contract to induce continued effort | - |
dc.type | Article | - |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1287/mnsc.2017.2826 | - |
dc.identifier.scopus | eid_2-s2.0-85052632079 | - |
dc.identifier.volume | 64 | - |
dc.identifier.issue | 9 | - |
dc.identifier.spage | 4193 | - |
dc.identifier.epage | 4217 | - |
dc.identifier.eissn | 1526-5501 | - |
dc.identifier.isi | WOS:000442656700012 | - |