Principal-agentModeling

責(zé)任代理模式

1Principal-agentModeling

責(zé)任代理我請(qǐng)您們考慮一些問題Asmallmedicalinsurancescenario一個(gè)醫(yī)療保健的問題

Whenyouhaveasmallillness,doyounormallyseeyourdoctor?

當(dāng)你有小病的時(shí)候，你會(huì)不會(huì)自費(fèi)看醫(yī)生？

Whatabout,ifyourfirmpayforyourexpense?

但是，如果是單位付錢呢，那又怎樣？Dr.Chak-TongChau2FulbrightGuestLectureMaterials我請(qǐng)您們考慮一些問題Asmallmedicalinsu我請(qǐng)您們考慮一些問題Acarmaintenancescenario一個(gè)汽車維修的問題

Yourcarisbeingrentedfor2months.Supposedly,itneedsoilingeverymonth.Howlikelyyouwillremembertodoso?

你的汽車是租來用兩個(gè)月的，它需要每月潤(rùn)滑上油一次。你會(huì)不會(huì)依時(shí)地去上油？

Howaboutifthisisyourowncar?

如果這是你自己的汽車，你又會(huì)不會(huì)去做？Dr.Chak-TongChau3FulbrightGuestLectureMaterials我請(qǐng)您們考慮一些問題Acarmaintenancesc我請(qǐng)您們考慮一些問題Amedicalinsuranceproblem自費(fèi)醫(yī)療保險(xiǎn)的問題

Whenwepurchasemedicalinsurance,theinsurancecompanyusuallyrequiresthatyoudiscloseyourmedicalhistory.Pre-conditionsareusuallyexcludedfromthecoverage.

購買保險(xiǎn)的時(shí)候，它們通常要求你列出你的病歷。但是如果你有大病的話，很可能保險(xiǎn)公司不愿意受保。Dr.Chak-TongChau4FulbrightGuestLectureMaterials我請(qǐng)您們考慮一些問題Amedicalinsurance我請(qǐng)您們考慮一些問題

Ifyoudoinfacthavesomemajormedicalproblemsthatrequireexpensivetreatments,wouldyoudisclosetheseproblems?

如果你真的有大病,你會(huì)不會(huì)真實(shí)地上報(bào)？

Whatdoallthesetellusaboutcertainhumanbehavior?

這些問題表明了一些什么的人性行為？Dr.Chak-TongChau5FulbrightGuestLectureMaterials我請(qǐng)您們考慮一些問題 IfyoudoinfacthAgencyProblemsandBehavior

代理人的行為與問題Amoralhazardproblem(道德危機(jī)問題)

whenanindividualhasanincentivetodeviatefromthecontractandtakeself-interestedactionsbecausetheotherpartyhasinsufficientinformationtoknowifthecontractwashonored.

醫(yī)療保健雖然我知道我與雇主的契約明確列出我不要浪費(fèi)公司的資源。但是用公司的好過用我的嘛！而且公司又不會(huì)知道我未能遵守契約。Dr.Chak-TongChau6FulbrightGuestLectureMaterialsAgencyProblemsandBehavior

代AgencyProblemsandBehavior

代理人的行為與問題Ahorizonproblem水平界線問題

Ifoneparty’sriskorcompensationisnotthesameastheotherparty’s,theonewithashorterhorizonwilltendtosecretlymaximizetheshort-termbenefits,attheexpenseoftheotherlonger-termparty.

汽車維修我明白汽車不維修壽命不會(huì)長(zhǎng)。但是，兩個(gè)月以后這車子變成怎么樣與我無關(guān)了吧。Dr.Chak-TongChau7FulbrightGuestLectureMaterialsAgencyProblemsandBehavior

代AgencyProblemsandBehavior

代理人的行為與問題Anadverseselectionproblem逆向選擇問題

Thetendencyofindividualswithprivateinformationaboutsomethingthataffectsapotentialtradingpartner’sbenefitstomakeoffersthataredetrimentaltothetradingpartner.

自費(fèi)醫(yī)療保險(xiǎn):雖然我知道保險(xiǎn)公司需要知道我的病歷從而決定保險(xiǎn)費(fèi)。但是誠實(shí)的代價(jià)是較高的費(fèi)用。此外，我不說，誰知道。Dr.Chak-TongChau8FulbrightGuestLectureMaterialsAgencyProblemsandBehavior

代誰是代理人？什么是代理成本？Anagentissomeonewhohascertainspecialexpertisethatisdesiredbytheprincipaltouseforhis/herbenefits.Theagentisusuallyriskadverse,hasdecisionrightstomanage,butdoesnotown,theorganization’sassets.

代理人(agent)是任何人在公司有決策權(quán)力，但是并非產(chǎn)權(quán)的最終所有者。代理人通常有較佳的專長(zhǎng)，更好的資訊，和對(duì)風(fēng)險(xiǎn)抱保守的態(tài)度(riskadverse)。Dr.Chak-TongChau9FulbrightGuestLectureMaterials誰是代理人？什么是代理成本？Anagentissome誰是代理人？什么是代理成本？Therearethree(3)typesofagencycosts.代理成本有三類：設(shè)計(jì)限制性契約的成本(bondingcosts)建立監(jiān)督制度的成本(monitoringcosts)剩餘的損耗(residualloss)Notethatsomecostsareborntbytheprincipalbutsomeareborntbytheagent.

注意的是，有時(shí)這些成本是由委托人(principal)負(fù)擔(dān)。不過有時(shí)這些成本是由代理人自己負(fù)擔(dān)的。Dr.Chak-TongChau10FulbrightGuestLectureMaterials誰是代理人？什么是代理成本？TherearethreeAgencyCostsBondingcosts–costsincurred,beforeenteringthecontract,toconvincetheprincipalthatsuchagencyrelationshipwillnotresultintheabove-mentionedagencyproblems.Examplesare:reputationbuilding,3rdpartyguarantor,etc.Dr.Chak-TongChau11FulbrightGuestLectureMaterialsAgencyCostsBondingcosts–coAgencyCostsMonitoringcosts–costsincurred,afterenteringthecontract,toensurethatsuchagencyproblemswillnotarise.Examplesincludeauditingandinspectioncosts.Dr.Chak-TongChau12FulbrightGuestLectureMaterialsAgencyCostsMonitoringcosts–AgencyCostsResidualloss–lossunavoidablyarise,despitethebondingandmonitoringcosts,thecontractstillcannotyieldtheutmostbenefits,because:theagencyproblemsdoarise,orduetothesuspicionoftheagencyproblems,theprincipalrefusestopaytheagentcompensationsthatfullyreflecthis/herefforts.Dr.Chak-TongChau13FulbrightGuestLectureMaterialsAgencyCostsResidualloss–loExamplesofthePrincipal-agentModelEffortlevelProbabilitiesandpayoffsfor4differenteventsS1=0.3S2=0.3S3=0.2S4=0.2E1=6$55,000$55,000$55,000$40,000E2=5$55,000$55,000$40,000$40,000E3=4$55,000$40,000$40,000$40,000Dr.Chak-TongChau14FulbrightGuestLectureMaterialsExamplesofthePrincipal-agenExamplesofthePrincipal-agentModelAgent’sUtilityFunction:Xa?-e2

100where: Xa=agent’scompensations e=theeffortlevelusedbytheagent Question1:Ifyouweretheprincipalinenteringthecontract,whichlevelofeffort(e1,e2,ore3)wouldyoudemand?Question2:Ifyou,theprincipal,cancloselymonitorandobservetheagentatalltime,whataretheamountandconditionofpayment?And,whatistheexpectedpayofffortheprincipal?Dr.Chak-TongChau15FulbrightGuestLectureMaterialsExamplesofthePrincipal-agenNow,let’sassumethatyoucannotmonitorandobservetheagentdirectly.Whatwouldyou,astheagent,do?Now,canyouseetheagencyproblemshere?EffortlevelExpectedutilityoftheagentE1=618,496?-62=100E2=518,496?-52=111E3=418,496?-42=112Isitlikelytohavethe“adverseselection”problem?Howaboutthe“moralhazard”problem?And,thehorizonproblem?Residualloss?Dr.Chak-TongChau16FulbrightGuestLectureMaterialsNow,let’sassumethatyoucanWhatcanwesay,uptothispoint?Underconditionofunobservability(incompleteinformation),fixedpaymentstoagents(i.e.workers,employees)mostlikelydonotwork.Whatarethenthealternatives?Wecangivetheprincipalafixedpaymentinstead.Or,wecancomeupwithan“incentivecompatible”conditionalcontract.Dr.Chak-TongChau17FulbrightGuestLectureMaterialsWhatcanwesay,uptothispoFixedPaymenttothePrincipalConsiderthisnewcontractunderwhichtheprincipalgets$32,750nomatterwhathappensandtheagentkeepstherest.Willthiswork?EffortlevelExpectedpayofftotheagentE1=6[(55,000?x0.8+40,000?x0.2)-32,750]-36=100.36E2=5[(55,000?x0.6+40,000?x0.4)-32,750]-25=98.56E3=4[(55,000?x0.3+40,000?x0.7)-32,750]-16=88.35Dr.Chak-TongChau18FulbrightGuestLectureMaterialsFixedPaymenttothePrincipalFixedPaymenttothePrincipalThus,numericallythiswillworktoensurethattheagentgivesthehighesteffort.However,thereisnonethelessalosstotheprincipal(33,504-32,750)=754whichisinasenseamonitoringcost(maximumcosttopayforaninformationsystemtorevealtheagent’seffortlevel).Butthemostfundamentalproblemisthatthistypeofcontractsviolatesthe“riskadverse”natureoftheagent.Nowtheagentbecomestheprincipal!Dr.Chak-TongChau19FulbrightGuestLectureMaterialsFixedPaymenttothePrincipalIncentiveCompatibleContract–ProblemSetupMaximize(55,000–R55)Φ55(e1)+(40,000-R40)Φ40(e1)Subjectto:R55?Φ55(e1)+R40?Φ40(e1)-e12=100 R55?Φ55(e1)+R40?Φ40(e1)-e12R55?Φ55(e2)+R40?Φ40(e2)–e22R55?Φ55(e1)+R40?Φ40(e1)-e12R55?Φ55(e3)+R40?Φ40(e3)–e32Dr.Chak-TongChau20FulbrightGuestLectureMaterialsIncentiveCompatibleContractIncentiveCompatibleContract–SpecificSolutionsMaximize(55,000–R55)0.8+(40,000-R40)0.2Subjectto:R55?(0.8)+R40?(0.2)-36

=100 R55?(0.8)+R40?(0.2)-36

R55?(0.6)+R40?Φ40(0.4)–25R55?(0.8)+R40?(0.2)-36

R55?(0.3)+R40?(0.7)–16Solutions: R55=21,609 R40=

8,464Expectedpayoffs: Principal = 33,020 Agent = 18,980Dr.Chak-TongChau21FulbrightGuestLectureMaterialsIncentiveCompatibleContractSummaryofDifferentContractsEventundere1Principal’sPayoffsAgent’sPayoffObservableFixedRenttoPrin.IncentiveCompat.ObservableFixedRenttoPrin.IncentiveCompat.55,000(p=0.8)36,50432,75033,39118,49622,25021,60940,000(p=0.2)21,50432,75031,53618,4967,2508,464ExpectedPayoffs33,50432,75033,02018,49619,25018,980Dr.Chak-TongChau22FulbrightGuestLectureMaterialsSummaryofDifferentContractsWhatdoweknowfromthese?Thebestcasescenariofortheprincipaliswhenhecanobservetheagent’seffortleveldirectly.Theworstcasescenariototheprincipalappearstobesimplychargingafixedrent.Thedifferencebetweenthetwo($754)representsthemaximumamounttopayforaninformationsystemtorevealtheagent’seffort.Themiddle,2ndbestsolution(incentivecompatiblecontract)maynotalwaysbethenextbestthingthough!Dr.Chak-TongChau23FulbrightGuestLectureMaterialsWhatdoweknowfromthese?TheLet’ssaythatwesetthetwovariables,R55andR40,tobe18,769and11,449respectively.EffortlevelExpectedutilityoftheagentE1=6(18,769?)0.8+(11,449?)0.2-6?=95E2=5(18,769?)0.6+(11,449?)0.4-5?=100E3=4(18,769?)0.3+(11,449?)0.7-4?=100Now,theprincipalistellingtheagentNOTtoworkhard!The$33,159isactuallybetterthanthe$33,020under“incentivecompatible”contract!EffortlevelExpectedutilityoftheprincipalE1=6Notafeasiblesolution,agent’sutility<100n/aE2=5(55,000-18,769)0.6+(40,000-11,449)0.4

=33,159E3=4(55,000-18,769)0.3+(40,000-11,449)0.7

=30,855Dr.Chak-TongChau24FulbrightGuestLectureMaterialsLet’ssaythatwesetthetwoAFewCautionaryRemarksThismodelpresentedhereisasingle-periodmodel.Multiple-period(repeatedgames)cangiveverydifferentanswers.Therecanbemultipleprincipalsaswellasmultipleagentsinthemodel.Suchmodels,however,becomeextremelycomplex.Informationsystemsarenotconsideredhere.Dr.Chak-TongChau25FulbrightGuestLectureMaterialsAFewCautionaryRemarksThismConcludingRemarksThePrincipal-agentmodelistheoreticalelegantbutmathematicallytedioustouse.Empirical(real-life)evidenceseemstosupportthemodelwell.Thechallenges,inmyopinion,include:tocomeupwithuseful,testablehypotheses;toextendthemodeltomorecomplex,butrealbusinesssituations;toencourageresearcherstoteachnewcomersthebasicskillinunderstandingthemodelratherthansimplytopublishin“ivory-tower”typeofjournals.Dr.Chak-TongChau26FulbrightGuestLectureMaterialsConcludingRemarksThePrincipa中國在職教育網(wǎng)服務(wù)指南1、免費(fèi)提供全國在職研究生招生簡(jiǎn)章大全，在職研究生英語輔導(dǎo)班信息。在職研究生是本專科大學(xué)畢業(yè)生獲得碩士學(xué)位的最快捷徑，可免試入學(xué)，在職學(xué)習(xí)，拿碩士學(xué)位。2、免費(fèi)提供MBA、研究生、法碩考前輔導(dǎo)班信息。正規(guī)的考研輔導(dǎo)班、豐富的配套資料，為考生提供了創(chuàng)造輝煌成績(jī)的契機(jī)。3、在職研究生英語、商務(wù)英語、新概念英語、雅思英語、中外教口語、四六級(jí)英語、英語聽力、職稱英語課程，以其先進(jìn)的教學(xué)方式、優(yōu)秀的中外師資、新穎實(shí)用的國內(nèi)外優(yōu)秀教材讓您感受學(xué)習(xí)英語成功的自信和樂趣。Dr.Chak-TongChau27FulbrightGuestLectureMaterials中國在職教育網(wǎng)服務(wù)指南Dr.Chak-TongChau2中國在職教育網(wǎng)服務(wù)指南4、人力資源管理人員、心理咨詢師、秘書、物業(yè)管理人員、公關(guān)員、項(xiàng)目管理師、推銷員、企業(yè)信息管理師、營銷師、電子商務(wù)師、職業(yè)指導(dǎo)人員考前培訓(xùn)課程，為您提供多種職業(yè)資格考試培訓(xùn)信息，通過面授輔導(dǎo)，網(wǎng)上學(xué)習(xí)等形式幫助您提高職業(yè)技能，獲得職業(yè)資格證書。5、收費(fèi)資料有行業(yè)報(bào)告、市場(chǎng)研究、學(xué)術(shù)論文、企業(yè)數(shù)據(jù)，是企業(yè)投資決策、個(gè)人學(xué)術(shù)研究的必備資料。6、國內(nèi)最新最全的管理光盤書籍。為您提供內(nèi)容最新、門類最全的光盤書籍，全面提升企業(yè)業(yè)績(jī)和個(gè)人管理技能。Dr.Chak-TongChau28FulbrightGuestLectureMaterials中國在職教育網(wǎng)服務(wù)指南Dr.Chak-TongChau2Principal-agentModeling

責(zé)任代理模式

29Principal-agentModeling

責(zé)任代理我請(qǐng)您們考慮一些問題Asmallmedicalinsurancescenario一個(gè)醫(yī)療保健的問題

Whenyouhaveasmallillness,doyounormallyseeyourdoctor?

當(dāng)你有小病的時(shí)候，你會(huì)不會(huì)自費(fèi)看醫(yī)生？

Whatabout,ifyourfirmpayforyourexpense?

但是，如果是單位付錢呢，那又怎樣？Dr.Chak-TongChau30FulbrightGuestLectureMaterials我請(qǐng)您們考慮一些問題Asmallmedicalinsu我請(qǐng)您們考慮一些問題Acarmaintenancescenario一個(gè)汽車維修的問題

Yourcarisbeingrentedfor2months.Supposedly,itneedsoilingeverymonth.Howlikelyyouwillremembertodoso?

你的汽車是租來用兩個(gè)月的，它需要每月潤(rùn)滑上油一次。你會(huì)不會(huì)依時(shí)地去上油？

Howaboutifthisisyourowncar?

如果這是你自己的汽車，你又會(huì)不會(huì)去做？Dr.Chak-TongChau31FulbrightGuestLectureMaterials我請(qǐng)您們考慮一些問題Acarmaintenancesc我請(qǐng)您們考慮一些問題Amedicalinsuranceproblem自費(fèi)醫(yī)療保險(xiǎn)的問題

Whenwepurchasemedicalinsurance,theinsurancecompanyusuallyrequiresthatyoudiscloseyourmedicalhistory.Pre-conditionsareusuallyexcludedfromthecoverage.

購買保險(xiǎn)的時(shí)候，它們通常要求你列出你的病歷。但是如果你有大病的話，很可能保險(xiǎn)公司不愿意受保。Dr.Chak-TongChau32FulbrightGuestLectureMaterials我請(qǐng)您們考慮一些問題Amedicalinsurance我請(qǐng)您們考慮一些問題

Ifyoudoinfacthavesomemajormedicalproblemsthatrequireexpensivetreatments,wouldyoudisclosetheseproblems?

如果你真的有大病,你會(huì)不會(huì)真實(shí)地上報(bào)？

Whatdoallthesetellusaboutcertainhumanbehavior?

這些問題表明了一些什么的人性行為？Dr.Chak-TongChau33FulbrightGuestLectureMaterials我請(qǐng)您們考慮一些問題 IfyoudoinfacthAgencyProblemsandBehavior

代理人的行為與問題Amoralhazardproblem(道德危機(jī)問題)

whenanindividualhasanincentivetodeviatefromthecontractandtakeself-interestedactionsbecausetheotherpartyhasinsufficientinformationtoknowifthecontractwashonored.

醫(yī)療保健雖然我知道我與雇主的契約明確列出我不要浪費(fèi)公司的資源。但是用公司的好過用我的嘛！而且公司又不會(huì)知道我未能遵守契約。Dr.Chak-TongChau34FulbrightGuestLectureMaterialsAgencyProblemsandBehavior

代AgencyProblemsandBehavior

代理人的行為與問題Ahorizonproblem水平界線問題

Ifoneparty’sriskorcompensationisnotthesameastheotherparty’s,theonewithashorterhorizonwilltendtosecretlymaximizetheshort-termbenefits,attheexpenseoftheotherlonger-termparty.

汽車維修我明白汽車不維修壽命不會(huì)長(zhǎng)。但是，兩個(gè)月以后這車子變成怎么樣與我無關(guān)了吧。Dr.Chak-TongChau35FulbrightGuestLectureMaterialsAgencyProblemsandBehavior

代AgencyProblemsandBehavior

代理人的行為與問題Anadverseselectionproblem逆向選擇問題

Thetendencyofindividualswithprivateinformationaboutsomethingthataffectsapotentialtradingpartner’sbenefitstomakeoffersthataredetrimentaltothetradingpartner.

自費(fèi)醫(yī)療保險(xiǎn):雖然我知道保險(xiǎn)公司需要知道我的病歷從而決定保險(xiǎn)費(fèi)。但是誠實(shí)的代價(jià)是較高的費(fèi)用。此外，我不說，誰知道。Dr.Chak-TongChau36FulbrightGuestLectureMaterialsAgencyProblemsandBehavior

代誰是代理人？什么是代理成本？Anagentissomeonewhohascertainspecialexpertisethatisdesiredbytheprincipaltouseforhis/herbenefits.Theagentisusuallyriskadverse,hasdecisionrightstomanage,butdoesnotown,theorganization’sassets.

代理人(agent)是任何人在公司有決策權(quán)力，但是并非產(chǎn)權(quán)的最終所有者。代理人通常有較佳的專長(zhǎng)，更好的資訊，和對(duì)風(fēng)險(xiǎn)抱保守的態(tài)度(riskadverse)。Dr.Chak-TongChau37FulbrightGuestLectureMaterials誰是代理人？什么是代理成本？Anagentissome誰是代理人？什么是代理成本？Therearethree(3)typesofagencycosts.代理成本有三類：設(shè)計(jì)限制性契約的成本(bondingcosts)建立監(jiān)督制度的成本(monitoringcosts)剩餘的損耗(residualloss)Notethatsomecostsareborntbytheprincipalbutsomeareborntbytheagent.

注意的是，有時(shí)這些成本是由委托人(principal)負(fù)擔(dān)。不過有時(shí)這些成本是由代理人自己負(fù)擔(dān)的。Dr.Chak-TongChau38FulbrightGuestLectureMaterials誰是代理人？什么是代理成本？TherearethreeAgencyCostsBondingcosts–costsincurred,beforeenteringthecontract,toconvincetheprincipalthatsuchagencyrelationshipwillnotresultintheabove-mentionedagencyproblems.Examplesare:reputationbuilding,3rdpartyguarantor,etc.Dr.Chak-TongChau39FulbrightGuestLectureMaterialsAgencyCostsBondingcosts–coAgencyCostsMonitoringcosts–costsincurred,afterenteringthecontract,toensurethatsuchagencyproblemswillnotarise.Examplesincludeauditingandinspectioncosts.Dr.Chak-TongChau40FulbrightGuestLectureMaterialsAgencyCostsMonitoringcosts–AgencyCostsResidualloss–lossunavoidablyarise,despitethebondingandmonitoringcosts,thecontractstillcannotyieldtheutmostbenefits,because:theagencyproblemsdoarise,orduetothesuspicionoftheagencyproblems,theprincipalrefusestopaytheagentcompensationsthatfullyreflecthis/herefforts.Dr.Chak-TongChau41FulbrightGuestLectureMaterialsAgencyCostsResidualloss–loExamplesofthePrincipal-agentModelEffortlevelProbabilitiesandpayoffsfor4differenteventsS1=0.3S2=0.3S3=0.2S4=0.2E1=6$55,000$55,000$55,000$40,000E2=5$55,000$55,000$40,000$40,000E3=4$55,000$40,000$40,000$40,000Dr.Chak-TongChau42FulbrightGuestLectureMaterialsExamplesofthePrincipal-agenExamplesofthePrincipal-agentModelAgent’sUtilityFunction:Xa?-e2

100where: Xa=agent’scompensations e=theeffortlevelusedbytheagent Question1:Ifyouweretheprincipalinenteringthecontract,whichlevelofeffort(e1,e2,ore3)wouldyoudemand?Question2:Ifyou,theprincipal,cancloselymonitorandobservetheagentatalltime,whataretheamountandconditionofpayment?And,whatistheexpectedpayofffortheprincipal?Dr.Chak-TongChau43FulbrightGuestLectureMaterialsExamplesofthePrincipal-agenNow,let’sassumethatyoucannotmonitorandobservetheagentdirectly.Whatwouldyou,astheagent,do?Now,canyouseetheagencyproblemshere?EffortlevelExpectedutilityoftheagentE1=618,496?-62=100E2=518,496?-52=111E3=418,496?-42=112Isitlikelytohavethe“adverseselection”problem?Howaboutthe“moralhazard”problem?And,thehorizonproblem?Residualloss?Dr.Chak-TongChau44FulbrightGuestLectureMaterialsNow,let’sassumethatyoucanWhatcanwesay,uptothispoint?Underconditionofunobservability(incompleteinformation),fixedpaymentstoagents(i.e.workers,employees)mostlikelydonotwork.Whatarethenthealternatives?Wecangivetheprincipalafixedpaymentinstead.Or,wecancomeupwithan“incentivecompatible”conditionalcontract.Dr.Chak-TongChau45FulbrightGuestLectureMaterialsWhatcanwesay,uptothispoFixedPaymenttothePrincipalConsiderthisnewcontractunderwhichtheprincipalgets$32,750nomatterwhathappensandtheagentkeepstherest.Willthiswork?EffortlevelExpectedpayofftotheagentE1=6[(55,000?x0.8+40,000?x0.2)-32,750]-36=100.36E2=5[(55,000?x0.6+40,000?x0.4)-32,750]-25=98.56E3=4[(55,000?x0.3+40,000?x0.7)-32,750]-16=88.35Dr.Chak-TongChau46FulbrightGuestLectureMaterialsFixedPaymenttothePrincipalFixedPaymenttothePrincipalThus,numericallythiswillworktoensurethattheagentgivesthehighesteffort.However,thereisnonethelessalosstotheprincipal(33,504-32,750)=754whichisinasenseamonitoringcost(maximumcosttopayforaninformationsystemtorevealtheagent’seffortlevel).Butthemostfundamentalproblemisthatthistypeofcontractsviolatesthe“riskadverse”natureoftheagent.Nowtheagentbecomestheprincipal!Dr.Chak-TongChau47FulbrightGuestLectureMaterialsFixedPaymenttothePrincipalIncentiveCompatibleContract–ProblemSetupMaximize(55,000–R55)Φ55(e1)+(40,000-R40)Φ40(e1)Subjectto:R55?Φ55(e1)+R40?Φ40(e1)-e12=100 R55?Φ55(e1)+R40?Φ40(e1)-e12R55?Φ55(e2)+R40?Φ40(e2)–e22R55?Φ55(e1)+R40?Φ40(e1)-e12R55?Φ55(e3)+R40?Φ40(e3)–e32Dr.Chak-TongChau48FulbrightGuestLectureMaterialsIncentiveCompatibleContractIncentiveCompatibleContract–SpecificSolutionsMaximize(55,000–R55)0.8+(40,000-R40)0.2Subjectto:R55?(0.8)+R40?(0.2)-36

=100 R55?(0.8)+R40?(0.2)-36

R55?(0.6)+R40?Φ40(0.4)–25R55?(0.8)+R40?(0.2)-36

R55?(0.3)+R40?(0.7)–16Solutions: R55=21,609 R40=

8,464Expectedpayoffs: Principal = 33,020 Agent = 18,980Dr.Chak-TongChau49FulbrightGuestLectureMaterialsIncentiveCompatibleContractSummaryofDifferentContractsEventundere1Principal’sPayoffsAgent’sPayoffObservableFixedRenttoPrin.IncentiveCompat.ObservableFixedRenttoPrin.IncentiveCompat.55,000(p=0.8)36,50432,75033,39118,49622,25021,60940,000(p=0.2)21,50432,75031,53618,4967,2508,464ExpectedPayoffs33,50432,75033,02018,49619,25018,980Dr.Chak-TongChau50FulbrightGuestLectureMaterialsSummaryofDifferentContractsWhatdoweknowfromthese?Thebestcasescenariofortheprincipaliswhenhecanobservetheagent’seffortleveldirectly.Theworstcasescenariototheprincipalappearstobesimplychargingafixedrent.Thedifferencebetweenthetwo($754)representsthemaximumamounttopayforaninformationsystemtorevealtheagent’seffort.Themiddle,2ndbestsolution(incentivecompatiblecontract)maynotalwaysbethenextbestthingthough!Dr.Chak-TongChau51FulbrightGuestLectureMaterialsWhatdoweknowfromthese?TheLet’ssaythatwesetthetwovari