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Business activities often involve a common agent managing a variety of projects on behalf of investors with potentially conflicting interests. The extent of the agent's actions is also often unknown to investors, who have to design contracts that provide incentives to the manager despite this lack of crucial knowledge. We consider a game between several principals and a common agent, where principals know only a subset of the actions available to the agent. Principals demand robustness and evaluate contracts on a worst‐case basis. This robust approach allows for a crisp characterization of the equilibrium contracts and payoffs and provides a novel proof of equilibrium existence in common agency by constructing a pseudo‐potential for the game. Robust contracts make explicit how the efficiency of the equilibrium outcome relative to collusion among principals depends on the principals' ability to extract payments from the agent. [ABSTRACT FROM AUTHOR]

We consider a dynamic principal‐agent problem, where the sole instrument the principal has to incentivize the agent is the disclosure of information. The principal aims at maximizing the (discounted) number of times the agent chooses the principal's preferred action. We show that there exists an optimal policy, where the principal recommends its most preferred action and discloses information as a reward in the next period, until either this action becomes statically optimal for the agent or the agent perfectly learns the state. [ABSTRACT FROM AUTHOR]

A variety of empirical papers document the coexistence of exclusive and nonexclusive contracts within a given market across a multitude of industries. However, the theoretical literature has not been able to generate a differentiable model with the coexistence of these contracts. I rectify the gap in the literature by developing a theoretical model of two-sided matching, in which principals and agents choose between exclusive and nonexclusive contracts with cost-of-effort inefficiencies. I find that the coexistence of contracts relies on cost-sharing between principals, relative bargaining power, and an endogenous outside option. I also find that the pattern of contracts is monotonic with respect to the type distributions of principals and agents. [ABSTRACT FROM AUTHOR]

We study contracting when both principal and agent have to exert noncontractible effort for production to take place. An analyst is uncertain about what actions are available and evaluates a contract by the expected payoffs it guarantees to each party in spite of the surrounding uncertainty. Both parties are risk‐neutral; there is no limited liability. Linear contracts, which leave the agent with a constant share of output in exchange for a fixed fee, are optimal. This result holds both in a preliminary version of the model, where the principal only chooses to supply or not supply an input, and in several variants of a more general version, where the principal may have multiple choices of input. The model thus generates nontrivial linear sharing rules without relying on either limited liability or risk aversion. [ABSTRACT FROM AUTHOR]

This paper proposes a new method for investigating the existence of a deterministic solution to pure moral hazard problems under a general setting without imposing a priori topological restriction on the contract space. Our method avoids the detour to show the existence of a random contract before showing the existence of a deterministic contract. We show the existence of a solution in the classical moral hazard setting wherein the agent's utility is separable between money and effort, and the utilities of the principal and agent are concave in money. The proposed sufficient condition for the existence is comparable with the state-of-the-art results, and we use an easy-to-check approach. For example, we show the existence if the marginal incentive cost (per util given to the agent) is unbounded, or if the signal is finite. Also our approach can apply to multi-agent settings and the cases in which the agent utility is quasi-separable. [ABSTRACT FROM AUTHOR]

The JBCC Principal Building Agreement is widely used as the primary building agreement in South Africa, and claims are frequently encountered in construction projects where this contract is implemented. This study, therefore, set out to determine the perspective of principal agents, who are professional consultants acting as contract administrators within the South African construction industry, regarding the magnitude of claim incidents under the JBCC Principal Building Agreement. The research adopted a quantitative approach, involving the completion of a virtual structured questionnaire by 164 respondents who were practising principal agents in South Africa. The collected data was thereafter analysed by means of descriptive statistics. The following claim events were identified as noteworthy in terms of regularity and severity: adverse weather, the execution of additional work, rectification of physical losses and damages to the works where contractors are not at risk, causes beyond the reasonable control of contractors, and the inability to obtain materials and goods in time. By identifying the knowledge void regarding the frequency and impact of claims in South Africa under the JBCC Principal Building Agreement, this study provides contracting parties with updated insights that can assist them in averting and effectively managing such claims, thereby minimising damages to all parties involved. Furthermore, while the study was confined to South Africa, the findings may still hold relevance for users of the contract in other countries. [ABSTRACT FROM AUTHOR]

Relational contracts are typically modeled as being between a principal and an agent, such as a firm owner and a supplier. Yet, in a variety of organizations, relationships are overseen by an intermediary such as a manager. Such arrangements open the door for collusion between the manager and the agent. This paper develops a theory of such managed relational contracts. We show that managed relational contracts differ from principal–agent ones in important ways. First, kickbacks from the agent can help solve the manager's commitment problem. When commitment is difficult, this can result in higher agent effort than the principal could incentivize directly. Second, making relationships more valuable enables more collusion and hence can reduce effort. We also analyze the principal's delegation problem and show that she may or may not benefit from entrusting the relationship to a manager. [ABSTRACT FROM AUTHOR]

The paper studies equilibrium contracts under adverse selection when there is repeated interaction between a principal and an agent over an infinite horizon, without commitment across periods. We show the second-best contract is offered in a perfect Bayesian equilibrium of the infinite horizon model. Unlike the equilibrium contracts in the finite-horizon, the equilibrium contracts in the infinite horizon are not subject to either the ratchet effect or take-the-money-and-run strategy, but rely on a carrot and stick strategy. We study two important applications, one of which is about the optimal regulation of a publicly-held firm. This application has a mixture of both moral hazard and adverse selection. The other application is to the problem of optimal nonlinear pricing when the valuation of the buyers are drawn from a continuum. [ABSTRACT FROM AUTHOR]

We, first with discrete outcomes and continuous effort, characterize the optimal contracts when a spiteful principal interacts with an other-regarding agent. We show that the optimal wage is weakly decreasing in principal's spitefulness. When the principal and the agent have exactly opposite other-regarding preferences, under certain situations, we get back the self-regarding benchmark optimal contract. Next with continuous outcomes and general functional forms, we characterize the optimal wage schedule and get back the sufficient statistics result when the principal and the agent have exactly opposite other-regarding preferences. • We characterize the optimal contract when a spiteful principal interacts with single agent. • The analysis is conducted both in closed form and in a general structure. • The optimal wage falls (weakly) with a ceteris paribus increase in principal's spite. • Self-regarding benchmark is achieved with exactly opposite other-regarding preferences. • We get back sufficient statistics result with exactly opposite other-regarding preferences. [ABSTRACT FROM AUTHOR]

Contracting is an integral part of project management. The contract stipulates the legal and commercial relationship between the two engaging parties. The dynamics of this mutual, contractual agreement is contextualized in the principle-agent theory. In practice, the effectiveness of executing the contractual agreement is dependent on relationship management between the principal and agent, which does not necessarily form part of the formal agreement. This paper aims to identify variables that define the principle-agent relationship and formulization of that in a relational charter. A conceptual model is developed to assess the validity of the agency and relational variables and their interrelationship towards the formation of a relational charter. This paper provides insight into the literature review and conceptual model to be used in field research. [ABSTRACT FROM AUTHOR]

Constitutivism holds that an account of what a thing is yields those normative standards to which that thing is by nature subject. We articulate a minimal form of constitutivism that we call formal, non-epistemological constitutivism which diverges from orthodox versions of constitutivism in two main respects. First: whereas orthodox versions of constitutivism hold that those ethical norms to which people are by nature subject are sui generis because of their special capacity to motivate action and legitimate criticism, we argue that these features are compatible with treating these norms as of a piece with those 'formal' natural-historical norms which can be used to assess living things. Second: unlike orthodox versions of constitutivism, our version does not seek to use a non-normative account of that kind of being which we are as a means of identifying those normative claims to which we are are by nature subject. We then indicate how our position can afford us the resources to address some of the familiar difficulties that face cognitivism in ethics. [ABSTRACT FROM AUTHOR]

Viewing quantum information as economic commodity, we provide a fundamental viewpoint toward a quantum theory of contracts. In particular, a generic quantum protocol of the principal–agent relation is formulated in a framework of quantum games, and quantum models of moral hazard problem and adverse selection are addressed. New infrastructures are about to be created by the development of quantum technology, which will have a revolutionary impact on people's economic activities. In other words, the time will come in the near future when people will conduct their economic activities on the complex Hilbert space. However, this kind of economic activity is not envisioned at all in conventional economics, so a new theory is literally needed. These problems include public and private interests of exchanging quantum commodity, market design and contracts, for example. In this article, We present a quantum contract theory based on this new fulcrum, and solve the problem of information asymmetry between principal and agent, which has long been a central issue in classical contract theory. [ABSTRACT FROM AUTHOR]

This study investigates pricing and return policies under various supply contracts in a closed-loop supply chain in which a supplier has more bargaining power than a retailer. We develop integrated supply contract models based on the principal–agent paradigm. Specifically, the supplier with more bargaining power devises a supply contract, acting as a Stackelberg leader. Then, given the contract offer, the retailer decides on pricing and return policies which affect consumers’ demand and return behaviours. We look into three commonly used supply contracts, i.e. wholesale price, buy-back and quantity discount contracts. The main purpose of this study is to explore how each supply contract affects the retailer’s decision on pricing and return policies, which in turn influence the profits of the entire supply chain and of its members. In doing so, we focus on investigating which contract coordinates the supply chain involving the retailer’s moral hazard. Through analytic comparison of contracts and extensive numerical analyses, we present numerous propositions to enrich the body of knowledge in the closed-loop supply chain and to provide meaningful decision guidelines to the practice. [ABSTRACT FROM PUBLISHER]

Maintenance outsourcing is quite common in industries that rely on complex and critical equipment. Instead of investing in the maintenance facilities, firms outsource maintenance activities to specialized companies. However, it may be hard for firms (i.e., principal) to observe whether maintenance companies (i.e., agent) put sufficient resources into providing the best service, which gives rise to agency issues. In a dynamic environment in which an agent is responsible for both maintenance and repair of a critical machine, how the principal uses payments and termination to tackle agency issues is a challenging problem. In "Optimal Contract for Machine Repair and Maintenance," F. Tian, P. Sun, and I. Duenyas provide theoretical guidance on designing the optimal contract to induce efforts from an agent to efficiently operate a machine. Although they consider the very general contract forms, the optimal contracts demonstrate simple and intuitive structures, making them easy to describe and implement in practice. A principal hires an agent to repair a machine when it is down and maintain it when it is up and earns a revenue flow when the machine is up. Both the up- and downtimes follow exponential distributions. If the agent exerts effort, the downtime is shortened, and uptime is prolonged. Effort, however, is costly to the agent and unobservable to the principal. We study optimal dynamic contracts that always induce the agent to exert effort while maximizing the principal's profits. We formulate the contract design problem as a stochastic optimal control model with incentive constraints in continuous time over an infinite horizon. Although we consider the contract space that allows payments and potential contract termination time to take general forms, the optimal contracts demonstrate simple and intuitive structures, making them easy to describe and implement in practice. [ABSTRACT FROM AUTHOR]

A principal hires an agent to provide a verifiable service. Initially, the agent can exert unobservable effort to reduce his disutility from providing the service. If the agent is free to waive his right to quit, he may voluntarily sign a contract specifying an inefficiently large service level, while there are insufficient incentives to exert effort. If the agent's right to quit is inalienable, the underprovision of effort may be further aggravated, but the service level is ex post efficient. Overall, it turns out that the total surplus can be larger when agents are not permitted to contractually waive their right to quit work. Yet, we also study an extension of our model in which even the agent can be strictly better off when the parties have the contractual freedom to waive the agent's right to quit. [ABSTRACT FROM AUTHOR]

The theory of incentives and matching theory can complement each other. In particular, matching theory can be a tool for analyzing optimal incentive contracts within a general equilibrium framework. We propose several models that study the endogenous payoffs of principals and agents as a function of the characteristics of all the market participants, as well as the joint attributes of the principal–agent pairs that partner in equilibrium. Moreover, considering each principal–agent relationship as part of a market may strongly influence our assessment of how the characteristics of the principal and the agent affect the optimal incentive contract. Finally, we discuss the effect of the existence of moral hazard on the nature of the matching between principals and agents that we may observe at equilibrium, compared to the matching that would happen if incentive concerns were absent. [ABSTRACT FROM AUTHOR]

This paper studies how to effectively provide product service system (PSS) in the supply chain with asymmetric information for service-oriented manufacturing (SOM). With a PSS, the manufacturer chooses the product quality, and the retailer, who possesses private cost information, is responsible for adding necessary value-added service based on the basic product. The analytical underpinnings of our work are provided by the principal-agent paradigm. In the paper, we develop three types of contracts and conduct a detailed comparison among the three contract models. With these studies, we find that: (i) the wholesale price contract is dominated by the other two contracts, (ii) The retail price maintenance contract can always generate a higher profit for the manufacturer and a higher welfare for the consumers, whereas the franchise fee (FF) contract can always generate a higher profit for the retailer and (iii) The FF contract can always stimulate more service from the retailer. Our theoretical and numerical results show that there are significantly different effects when the three types of contracts are utilized in the supply chain for SOM with asymmetric information, and which of them is the most attractive will depend largely on the power structure of the supply chain and/or their cost information types. [ABSTRACT FROM AUTHOR]

Copyright of Romanian Review of Private Law / Revista Română de Drept Privat is the property of Universul Juridic Publishing House and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Empirical evidence suggests that workers care about the mission of their job, in addition to their wage. This paper studies how organizations can choose a mission to attract, incentivize, and screen their workers. We analyze a model in which a principal offers a contract to an agent for the development of a project and can influence the agent's marginal return of effort through the choice of project mission. The principal's and the agents' mission preferences are misaligned and the agents vary in the intensity of their mission drive. Our main results highlight that how far the organization chooses to move from its preferred mission depends on the contractual environment in which it operates. Missions will be more agent-preferred in environments in which effort is noncontractible. In environments in which agents' drive is unknown, missions will be less agent-preferred and the organization will find it optimal to offer contract menus that may be implemented via scoring auctions when there are competing agents. Our analysis applies to the design and allocation of aid contracts, research funding, and creative jobs. [ABSTRACT FROM AUTHOR]

Monitoring in Dynamic Contract Design Adverse events are harmful to a firm or to the society. In many occasions, better effort in safeguarding a system can reduce the chance of such events. Consider the scenario in which a company (i.e., "principal") hires a subcontractor (i.e., "agent") to fulfill the duty of a safeguard. The agent's effort is unobservable, and the principal may, from time to time, conduct on-site monitoring. However, monitoring is often costly to the principal. In a dynamic environment in which the principal can use both monetary payments and monitoring to induce effort, how to optimally schedule them is a challenging and important problem. In "Optimal Monitoring Schedule in Dynamic Contracts," M. Chen, P. Sun, and Y. Xiao provide theoretical guidance on designing the optimal monitoring and payment schedules that always induce full effort from an agent. They formulate the contract design problem as a stochastic optimal control model and provide a complete characterization of the optimal solution. Their analysis suggests that the optimal dynamic contracts are simple to describe, easy to compute and implement, and intuitive to explain. Consider a setting in which a principal induces effort from an agent to reduce the arrival rate of a Poisson process of adverse events. The effort is costly to the agent and unobservable to the principal unless the principal is monitoring the agent. Monitoring ensures effort but is costly to the principal. The optimal contract involves monetary payments and monitoring sessions that depend on past arrival times. We formulate the problem as a stochastic optimal control model and solve the problem analytically. The optimal schedules of payment and monitoring demonstrate different structures depending on model parameters. Overall, the optimal dynamic contracts are simple to describe, easy to compute and implement, and intuitive to explain. [ABSTRACT FROM AUTHOR]

Recent technology advances have enabled firms to flexibly process and analyze sophisticated employee performance data at a reduced and yet significant cost. We develop a theory of optimal incentive contracting where the monitoring technology that governs the above procedure is part of the designer's strategic planning. In otherwise standard principal–agent models with moral hazard, we allow the principal to partition agents' performance data into any finite categories, and to pay for the amount of information the output signal carries. Through analysis of the trade‐off between giving incentives to agents and saving the monitoring cost, we obtain characterizations of optimal monitoring technologies such as information aggregation, strict monotone likelihood ratio property, likelihood ratio–convex performance classification, group evaluation in response to rising monitoring costs, and assessing multiple task performances according to agents' endogenous tendencies to shirk. We examine implications of these results for workforce management and firms' internal organizations. [ABSTRACT FROM AUTHOR]

Due to information asymmetry, adverse selection exists largely in the multiagent market. Aiming at these problems, we develop two models: pure adverse selection model and mixed adverse selection and moral hazard model. We make the assumption that a type of agent is discrete and effort level is continuous in the models. With these models, we investigate the characters that make an optimal contract as well as the conditions under which the utility of a principal and agents can be optimized. As a result, we show that, in the pure adverse selection model, the conditions to reach the optimal utility of a principal and individual agents are that a principal needs to design different contracts for different types of agents, and an individual agent chooses the corresponding type of contracts. For the mixed model, we show that incentive constraint for agents plays a very important role. In fact, we find that whether a principal provides high-type contract or a separating equilibrium contract depends on the probability of existence of low-type agents in the market. In general, if a separating equilibrium contract is issued, then information asymmetry will cause the utility of the high-type agents to be less than that of the case in full information. [ABSTRACT FROM AUTHOR]

This paper presents a simple bargaining model in a contracting situation between a risk-neutral principal and a risk-averse agent with limited liability. An increase in the agent's bargaining power has two effects. First, the negotiated contracts provide the agent a higher reward, which gives stronger incentive to exert effort. Second, the agent, whose marginal utility decreases with increasing income, exerts less effort, given the same reward, when the equilibrium income increases with the bargaining power. Therefore, we can show there is an inverted-U-shape relationship between agent's effort level and agent's bargaining power. [ABSTRACT FROM AUTHOR]

In this essay, some of the central issues concerning the legal phraseology of commercial contracts in the Geniza are discussed. These issues include not only questions about the text of these contracts themselves and the relationship of commercial contracts to Jewish and Islamic law but also what insights commercial contracts in the Geniza might offer social and economic historians into how both court practice and business were actually conducted in the medieval Islamic Mediterranean. Following this brief discussion are a transcription and a translation of an actual thirteenth-century business agreement. [ABSTRACT FROM AUTHOR]

This paper presents a simple bargaining model in a contracting situation between a risk-neutral principal and a risk-averse agent with limited liability. An increase in the agent's bargaining power has two effects. First, the negotiated contracts provide the agent a higher reward, which gives stronger incentive to exert effort. Second, the agent, whose marginal utility decreases with increasing income, exerts less effort, given the same reward, when the equilibrium income increases with the bargaining power. Therefore, we can show there is an inverted-U-shape relationship between agent's effort level and agent's bargaining power. [ABSTRACT FROM AUTHOR]

Copyright of Romanian Review of Private Law / Revista Română de Drept Privat is the property of Universul Juridic Publishing House and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The article focuses on methods of evaluating management performance from which optimal compensation contracts are based. It mentions that due to the cost and impracticability of evaluating the performance of managers via comprehensive reports of all their basic transactions and other non-financial information, the demand for aggregation in evaluating managers has risen. It states that optimal compensation contract design was split into two stages: developing a measure of evaluation for managerial performance, and using that measure to choose a compensation contract.

The author comments on the paper "Collusion and Noncontrollable Cost Allocation," concerning a model involving a principal who is risk neutral and two agents who are risk-averse. He comments on how the allocation procedure appeared to be closer to a transfer-pricing scheme than a cost-allocation scheme. He states that in a strategic setting, the definition of noncontrollability was not adequate and that it would be impossible to state categorically that the outcome would be controlled by the agent. he mentions that optimal contracts hide the endogenous cost of deterring collusion and that the principal does not derive the same payoffs by use of a suitable contract to stop collusion as the principal would in a collusion-free world.

The phenomenon of monitoring subordinates' actions and local environments, so commonly observed in large firms, is an attempt to alleviate the moral hazard problem induced by central managers (principals) being unable to costlessly observe subordinates' (agents') actions and the state of their environment. These monitoring activities take many forms and are generally performed in a stochastic manner. For example, supervisors make surprise checks on workers, and investigations are often triggered by standard cost variance reports. The information gathered from monitoring activities is used to penalize or reward subordinates (agents), thus altering their incentives and behavior. It is intuitively clear that the monitoring policy that will be employed depends upon the contract to be enforced. In a sense, every type of contract has both benefits and associated monitoring costs. The purpose of this paper is to study the simultaneous optimal choice of contracts and stochastic monitoring policies in a single-period principal-agent paradigm. [ABSTRACT FROM AUTHOR]

The article presents Great Britain Supreme Court case Bailey v Angove's PTY Ltd related to the effect of agency termination on the agent for collecting the debts, wherein the court held the agent's authority did not survive the termination of the agency agreement by the principal.

Common agency models are usually divided into two categories. Public agency assumes that firms (the principals) can contract formally with a common agent, which may be interpreted as a service provider or a client, over the same set of variables, while in private agency at least one principal cannot contract over some variables available to others. This paper studies a setting in which firms are unable to contract formally over some variables but can nevertheless include them in a relational contract, in the sense that some payments cannot be put in force by court and must be self-enforced. I characterize the equilibrium and show that public and private outcomes may be seen as extreme cases when either players are very patient or, respectively, not patient at all. For intermediate discount factors, firms make use of all information available, but the need for self-enforceability limits the incentives that may be credibly offered in equilibrium. [ABSTRACT FROM AUTHOR]

A principal uses security bid auctions to award an incentive contract to one among several agents in the presence of hidden action and hidden information. Securities range from cash to equity and call options. 'Steeper' securities are better surplus extractors, yet reduce effort incentives. In view of this trade-off, a hybrid share auction that includes a cash reward to the winner, a minimum share, and an option to call a fixed wage contract, tends to outperform all other auctions, although it is not an optimal mechanism. However, by adding output targets a hybrid share auction can (arbitrary closely) implement the optimal mechanism. [ABSTRACT FROM AUTHOR]

Copyright of Revista de Derecho UNED is the property of Editorial UNED and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The article discusses several issues related to the extension of international commercial arbitration clauses to third parties as of April 2013, focusing on the impacts of federal policy protections on economic globalization. American contract and agency laws are addressed, along with the legal rights of non-signatories in regards to arbitration agreements. Privity of contract and a U.S. Court of Appeals for the Second Circuit case involving the American Arbitration Association are examined.

The article focuses on agency law theory. Topics include the cost-benefit internalization theory, agency liability, and the legal obligations of an agency relationship. Information is provided on reasonable foreseeability, principle liability for an agent's contracts, and vicarious liability of a tort dispute.

Abstract: We study the effects of envy on relational employment contracts in a standard moral hazard setup with two agents. Performance is evaluated via an observable, but non-contractible signal which reflects an agent’s individual contribution to firm value. Both agents exhibit horizontal disadvantageous inequity aversion. In contrast to the literature, we find that inequity aversion may be beneficial; in the presence of envy, for a certain range of interest rates, relational contracts may be more profitable. For some interest rates reputational equilibria exist only with envious agents. [Copyright &y& Elsevier]

Abstract: We consider a model of team production in which the principal observes only the team output, but agents can monitor one another (at a cost) and provide reports to the principal. We consider the problem faced by a principal who is prevented from penalizing an agent without evidence showing that the agent failed to complete his assigned actions. We show the first-best (high effort but no monitoring) can be achieved, but only if the principal assigns second-best actions. The principal requires monitoring, but agents do not monitor, and as long as output is high, the principal does not penalize agents who fail to monitor. If the principal has the responsibility for monitoring, the first-best outcome cannot be achieved, thus we identify an incentive for delegated monitoring even when agents have no informational advantage. [Copyright &y& Elsevier]