scholarly journals An uncertain wage contract model for risk-averse worker under bilateral moral hazard

2017 ◽  
Vol 13 (4) ◽  
pp. 1815-1840 ◽  
Author(s):  
Xiulan Wang ◽  
◽  
Yanfei Lan ◽  
Wansheng Tang
Keyword(s):  
Moral Hazard ◽  
Risk Averse ◽  
Wage Contract

scholarly journals Responsibility Center Budgeting as a Mechanism to Deal with Academic Moral Hazard

2019 ◽  
Vol 49 (3) ◽  
pp. 13-23
Author(s):  
Gordon M. Myers
Keyword(s):  
Moral Hazard ◽  
Risk Averse ◽  
Central Administration ◽  
Financial Responsibility ◽  
The Right ◽  
Responsibility Center Budgeting ◽  
The University ◽  
Large Research ◽  
Responsibility Center

Universities face inherent informational asymmetries. These make university budgeting prone to various challenges including moral hazard. The last forty years has seen some large research- intensive universities move from centralized incremental budgeting to decentralized Responsibility Center Budgeting (RCB). It is assumed that a faculty chooses a level of costly effort in generating revenue for the university. The level of faculty effort is not observable by the central administration. When there is no revenue uncertainty or when the faculty is not risk averse, pure RCB is best from the perspective of the administration. The intuition is that pure RCB fully aligns financial responsibility with academic authority, that is, it makes the faculty the residual claimant. Once the faculty is risk averse, partial RCB is optimal. Partial RCB provides a balance between providing the right incentives to the faculty and the university reducing the revenue risk faced by the faculty.

Optimal Performance Targets

2020 ◽  
Author(s):  
Keri (Peicong) Hu ◽  
Yiwen Li ◽  
Korok Ray
Keyword(s):  
Moral Hazard ◽  
Optimal Performance ◽  
Risk Averse ◽  
Performance Targets ◽  
Moral Hazard Problem ◽  
Optimal Target ◽  
Increases In Risk ◽  
Performance Target

We study a class of contracts that is becoming ever more common among executives, in which the manager earns a discrete bonus if performance clears an explicit threshold. These performance targets provide the firm with an additional instrument to resolve its moral hazard problem with its manager. The performance target can achieve first-best under risk neutrality, with a target precisely equal to the desired effort that the firm seeks to induce. The optimal bonus increases in risk. If the manager is sufficiently risk averse, the firm will shade the optimal target below equilibrium effort to provide a form of insurance to the manager, outside of the standard reduction in the bonus.

Moral Hazard in Risk-Averse Teams

1987 ◽  
Vol 18 (3) ◽  
pp. 428 ◽  
Author(s):  
Eric Rasmusen
Keyword(s):  
Moral Hazard ◽  
Risk Averse

scholarly journals Mechanism Design of Fashion Virtual Enterprise under Monitoring Strategy

2014 ◽  
Vol 2014 ◽  
pp. 1-8 ◽  
Author(s):  
Min Huang ◽  
Kegui Chen ◽  
Chunhui Xu ◽  
Wai-Ki Ching ◽  
Xingwei Wang
Keyword(s):  
Moral Hazard ◽  
Virtual Enterprise ◽  
Risk Attitude ◽  
Risk Level ◽  
Risk Averse ◽  
Monitoring Strategy ◽  
Monitoring Cost ◽  
Agent Based ◽  
Effort Level ◽  
Monitoring Effort

Designing a revenue sharing contract to prevent the moral hazard is one of the most important issues in virtual enterprise (VE). As the partners’ productive effort level cannot be observed by the owner and other partners, there is usually moral hazard problem in VE. To mitigate the moral hazard, the owner sets the monitoring effort with monitoring cost. Considering a risk-neutral owner and multiple downside risk-averse partners, the owner’s problem of determining the monitoring effort and incentive intensity to maximize his profit while the partners determine their productive effort to maximize their profit is addressed. The principal agent based model of this problem is proposed. By solving the model, the optimal strategy of owner and partner is derived. By comparing with the no monitoring scenario, we find that implementing suitable monitoring strategy can reduce the moral hazard effectively. Finally, by analyzing the partners’ risk attitude, the result reveals that the lower the risk level of the partner is, the more the owner wants. These results suggest that VE should not only focus on the risk attitude but also on monitoring.

Screening risk-averse agents under moral hazard: single-crossing and the CARA case

2005 ◽  
Vol 30 (1) ◽  
pp. 151-169 ◽  
Author(s):  
Bruno Jullien ◽  
Bernard Salanié ◽  
François Salanié
Keyword(s):  
Moral Hazard ◽  
Risk Averse ◽  
Single Crossing

scholarly journals An Uncertain Wage Contract Model with Adverse Selection and Moral Hazard

2014 ◽  
Vol 2014 ◽  
pp. 1-9 ◽  
Author(s):  
Xiulan Wang ◽  
Yanfei Lan ◽  
Jiao Wang
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Private Information ◽  
Equivalent Form ◽  
Optimal Solution ◽  
Uncertain Variable ◽  
Wage Increase ◽  
Effort Level ◽  
Proposed Model ◽  
Wage Contract

This paper considers a wage contract design problem faced by an employer (he) who employs an employee (she) to work for him in labor market. Since the employee's ability that affects the productivity is her private information and cannot be observed by the employer, it can be characterized as an uncertain variable. Moreover, the employee's effort is unobservable to the employer, and the employee can select her effort level to maximize her utility. Thus, an uncertain wage contract model with adverse selection and moral hazard is established to maximize the employer's expected profit. And the model analysis mainly focuses on the equivalent form of the proposed wage contract model and the optimal solution to this form. The optimal solution indicates that both the employee's effort level and the wage increase with the employee's ability. Lastly, a numerical example is given to illustrate the effectiveness of the proposed model.

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