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Green innovation in the logistics industry is critical to mitigating environmental crises and ensuring sustainable development. In this study, a two-echelon logistics service supply chain (LSSC) is constructed consisting of a logistics service provider (LSP), a logistics service integrator (LSI), and customers. The LSP and the LSI collaborate to provide high-quality green logistics service products (GLSPs) to customers. Strategic cooperation is established between upstream and downstream enterprises in the form of supportive investment and cost-sharing to strengthen inter-organizational relationships; the LSI may show overconfidence in both the impact of his green innovation effort on demand expansion and control power in the vertical LSSC. By solving the LSI-led Stackelberg game, we find that: First, the innovation cost coefficients and the payment ratio affect optimal decisions, including the optimal level of GLSP design innovation, level of GLSP delivery innovation, price of the GLSP, and LSI's optimal expected utility. Second, relationship strength positively impacts optimal decisions; its impact on the LSI's optimal expected utility is related to the upper limit of the LSI's supportive investment for the LSP. Third, the LSI's overconfidence positively impacts the optimal decisions and the LSI's optimal expected utility, while it harms the LSI's optimal real utility; the impacts of the LSI's overconfidence and inter-organizational relationship strength are additive. Finally, a "green subsidy and loss-sharing" incentive contract is proposed, which can improve both the levels of design and delivery innovation, as well as the LSSC members' real utilities. The findings may provide new insights for LSSC green innovation practitioners. [ABSTRACT FROM AUTHOR]

In the process of forest ecological benefit compensation, there are problems of information asymmetry and "misaligned incentives", which will reduce the compensation efficiency. In order to improve the compensation efficiency, based on principal–agent theory, this study constructs incentive contract models for governmental forest ecological benefit compensation under three different scenarios, namely, information symmetry, single-sided information asymmetry, and double-sided information asymmetry. The study finds that the government can design different incentive contracts to motivate forest farmers with high and low forestry capabilities. And the government's expected utility is influenced by the proportion of forest farmers with high and low forestry capabilities in reality. Due to the information gap between the government and forest farmers, it is inevitable that high-capability forest farmers will obtain an information rent. Under double-sided information asymmetry, the incentive coefficient for lower-capability forest farmers and their optimal actual public welfare forest conservation area decrease as the proportion of high-capability forest farmers increases. Furthermore, when the proportion of high-capability forest farmers exceeds a certain threshold, signing compensation contracts with low-capability forest farmers can harm the government's interests. The research conclusions provide a scientific basis for the government to formulate differentiated incentive contracts for forest ecological benefits. This can effectively align forest farmers' conservation behaviors with the improvement of public forest ecological benefits. As a result, it contributes to improving the efficiency of forest ecological benefit compensation. [ABSTRACT FROM AUTHOR]

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We study theoretically and empirically the relation between altruism and incentive contract design. Theoretically, we extend Fischer and Huddart (2008) to investigate how social norms reinforce managers' altruistic preferences, thus affecting the optimal contract design related to incentive strength and performance measurement. Empirically, we draw on the notion of an organization's work climate to capture managers' altruistic preferences. Using data collected from a sample of 557 managers, we find that in a work climate where managers are mostly out for themselves, firms have lower pay-for-performance sensitivity and place a greater weight on aggregate performance measures. In addition, respondents report that they engage more in undesirable actions that are unproductive and costly to firm owners. In contrast, in a work climate where managers care about others (including peers in their organizational unit), firms place lower weights on aggregate performance measures. At the same time, respondents report that they supply more effort and engage less in undesirable actions. [ABSTRACT FROM AUTHOR]

This article accounts for multivariate dependence of the variable of policy interest in dynamic panel data models by disentangling the two sources of intertemporal dependence: one from the effect of the policy variable and the other from mean reversion. In a situation where intensity of the policy varies over time, we estimate the unconditional mean in the autoregressive process as a function of the agent’s characteristics and the policy intensity. Comparison of the fitted values of the unconditional mean under different values of the policy intensity enables identification of the policy effect cleared of mean reversion. The approach is relevant for measuring the effect of reforms, which use an intertemporal incentive where intensity of the reform varies over time. The empirical part of the article assesses the effect of hospital financing reform based on incentive contracts, related to the observed quality of services at Medicare hospitals in 2013–2019. We find a direct association between prior quality and quality improvement owing to the reform. Our result reassesses a stylized fact in the literature, which asserts that a pay-for-performance incentive leads to greater improvements at hospitals with lower baseline quality.

Under the information asymmetry, we consider the impact of task importance on the income of university managers, introducing the non-linear income function of university managers. Based on the principal-agent theory, we construct a non-linear incentive optimisation model for subject librarians. We discussed how university managers allocate incentive intensity and how the subject librarians allocate the effort level to achieve the best net expected income for university administrators and subject librarians while satisfying the constraints of participation and incentive compatibility. The results show that the optimal incentive contract for subject librarians is related to task importance, ability level, risk aversion characteristics and the randomness of the external environment in university libraries. The relative incentive intensity increases with the increase of task importance, risk aversion, ability level and randomness of information retrieval tasks, and decreases with the increase of randomness of subject service tasks.

In China, supply chain finance is still in infancy. However, it is the problems of information sharing, trust transfer, and risk management that have been making it difficult to meet the financing needs of small- and medium-sized enterprises (SMEs) in supply chain. The emerging blockchain technology, with its unique decentralization, traceability, and other characteristics, has found a digital solution for traditional supply chain finance. Although blockchain has attracted widespread attention and there are more general descriptions of blockchain application areas, there are few researches on the impact mechanisms of blockchain in-depth. Especially in the field of supply chain finance, there is little research on optimal incentive contract in online supply chain finance empowered by blockchain technology. Therefore, this paper explores the influence of blockchain technology maturity on participants, and thus finds the optimal incentive contract in online supply chain empowered by blockchain technology. Because of the mastery of blockchain technology, platforms believe they are well protected against risk and may behave irrationally. Therefore, this paper considers the overconfident behavior of blockchain supply chain finance platform in actual operation, and then applies the principal-agent model and incentive theory to design the incentive mechanism between platforms, banks, and central banks. Finally, numerical analyses show that overconfident behavior and the maturity of blockchain technology have an impact on the optimal decision for the whole supply chain. [ABSTRACT FROM AUTHOR]

Aiming at the two-stage supply chain composed of manufacturers and retailers, it is assumed that all enterprises upstream and downstream strive to implement carbon emission reduction. Because of information asymmetry, manufacturers have a moral hazard in reducing carbon emissions. At the same time, the government decides whether to implement punishment or not by testing the carbon emission reduction standards of the product declared by manufacturers and retailers. This paper focuses on the impact of manufacturers' moral hazard probability and government punishment level on carbon emission reductions and profits of upstream and downstream enterprises. The study results show that when the government penalty intensity acts only on the retailer, the manufacturer must have an incentive for moral hazard behavior. The higher its moral hazard probability, the greater the retailer's expected profit loss. Therefore, a linear incentive contract design with fixed payments and adjustable incentive coefficients for retailers and an external loss-sharing contract design are investigated as a way to resolve the possible losses from moral hazards. The before and after comparison with the profit level and emission reductions also confirm the effectiveness of the contract design, which can ensure the manufacturer's expected profit. Achieve Pareto improvement of retailers' profits simultaneously. Linear incentive contracts have some limitations compared to external loss-sharing contracts. The analysis of examples further verifies the validity of the relevant conclusions. [ABSTRACT FROM AUTHOR]

The solar PV-based microgrid, as a new mode of production and consumption of clean energy, backs up the variability of renewables and has important implications for mitigating global climate change. However, its further development is limited because of the high cost and uncertainty, which discourages its operators' investment willingness. To guide capital investment in microgrids, we construct a real options model to investigate the flexible investment of operators and the optimal incentive contract under uncertainty. The real options method can more accurately measure the value of real assets in an uncertain environment, and help decision-makers to assess investment costs and benefits. Moreover, a demonstration project in Hefei, China is provided as a case study to analyze the impact of the peak-valley price rates and cost changes on the incentive contract. The results demonstrate that subsidies are still necessary to accelerate the development of solar PV-based microgrids. However, subsidies in Hefei can be stopped until the investment cost drops to 6101.25 RMB/kW. Alleviating the cost pressure on operators can stimulate them to adopt the solar PV-based microgrid, but rapid cost reductions and fluctuations could hinder its development. We further uncover that raising the peak-valley price rate can help to reduce the government's financial burden caused by subsidies. [ABSTRACT FROM AUTHOR]

Based on the H-M model, the compensation incentive model is constructed under the inter-task cost function. The best compensation incentive contract is constructed by solving the incentive model, and the incentive characteristics are analysed. The results show that the best incentive intensity decreases as the subject service selectivity increases. The higher incentive intensity of university managers for specific tasks, the lower efforts of subject librarians for another specific task. Moreover, when the tasks are substituted for each other, the profit-sharing ratios corresponding to different tasks are complementary. Finally, we establish the econometric empirical models to test these results.

Abstract The delegating computation has become an irreversible trend, together comes the pressing need for fairness and efficiency issues. To solve this problem, we leverage game theory to propose a smart contract-based solution. First, according to the behavioral preferences of the participants, we design an incentive contract to describe the motivation of the participants. Next, to satisfy the fairness of the rational delegating computation, we propose a rational delegating computation protocol based on reputation and smart contract. More specifically, rational participants are to gain the maximum utility and reach the Nash equilibrium in the protocol. Besides, we design a reputation mechanism with a reputation certificate, which measures the reputation from multiple dimensions. The reputation is used to assure the client’s trust in the computing party to improve the efficiency of the protocol. Then, we conduct a comprehensive experiment to evaluate the proposed protocol. The simulation and analysis results show that the proposed protocol solves the complex traditional verification problem. We also conduct a feasibility study that involves implementing the contracts in Solidity and running them on the official Ethereum network. Meanwhile, we prove the fairness and correctness of the protocol.

The duality of cultural and creative industry can maintain the independence of creative birth and management as well as taking into account of the artistic and marketability of creativity. Income distribution contracts that link the design process to the commercial value of creative ideas can solve the problem of quantitative incentives for creative subjects. At the same time, it can encourage creative subjects to complete commercial and artistic design activities. The principal-agent relationship between the upstream and downstream of the industrial chain is utilized to stimulate the creation of creative ideas in line with market conditions, so as to solve the problem of duality reconciliation of cultural and creative industries. Through the design of the cultural creative industry chain dual task creative incentive contract, in the process of encouraging creative design subjects to complete the design of the work to give consideration to the coordination of duality. By analyzing the influences of design capability, risk, cost coefficient and binary correlation on the optimal investment level and the optimal risk sharing level of creative subjects in two types of design activities, the input transfer caused by the variation of the above conditions is further discussed. [ABSTRACT FROM AUTHOR]

Corporations have recently started incorporating employees' prosocial preferences into their incentive schemes, including charitable donations (corporate giving). These donations are mainly discussed in conjunction with the external effects of a firm's CSR strategy. However, this experiment examines the effect of donations on internal firm operations. Specifically, we investigate whether the presence and structure of corporate giving influences employees' excessive risk-taking. Such prosocial activities may remediate misaligned incentives often cited as drivers for employees to take excessive risks. Contrary to widespread practice, our experimental evidence suggests that firms could constrain employees' excessive risk-taking by linking existing contributions to project rather than corporate performance, thus providing boundaries around an employee's involvement in CSR initiatives. We identify project-level giving as an unexplored CSR benefit and infer that personal responsibility effectively changes an employee's incentive package. Our findings suggest an inverted U-shape curve of effectiveness. [ABSTRACT FROM AUTHOR]

We investigate a buyer’s contract design problem in which the buyer’s supplier has private quality cost information and is concerned with market valuation. We characterise the parameters of the contract menu (including quantity, quality level and transfer payment) and determine the market price. Our results show that the supplier’s market value concern (MVC) has positive implications and mitigates the distortion of quality level. Although both the buyer and the entire chain system benefit from this MVC, it may give advantage or disadvantage to the supplier of the low-cost type, depending on this supplier’s efficiency and the extent of the MVC. Numerical study reveals that the buyer is insensitive to the pricing decision, which suggests that contracts subject to the optimal market price without MVC serve as a good heuristic. [ABSTRACT FROM PUBLISHER]

Construction projects are riddled with risks that should be shared by both owners and contractors alike. The principal-agent theory has proven to be an influential theoretical apparatus in designing optimal risk-sharing rules and provides contractors with proper incentives to improve project efficiencies. According to the principal-agent theory, it is optimal to let the contractor assume all of the risk if it is risk-neutral. However, this article argues that this theoretical model may lead to a biased incentive structure. To demonstrate this point, this article analyzes the necessity of risk-sharing between the owner and risk-neutral contractor in construction projects. Taking into account cases where the respective planning efforts of the owner and contractor are supposed to be unverifiable and mutually complementary in terms of cost overrun risk, we find that either double moral hazard (i.e., both parties take opportunistic strategies) or inefficient breach of contract by the contractor occurs if the contractor assumes the entire cost overrun risk. An optimal risk-sharing strategy, therefore, plays an important role in coordinating both parties to choose efficient strategies. [ABSTRACT FROM AUTHOR]

Based on the H-M model, the optimal incentive model under competition was constructed, the best incentive system was constructed by solving the model, and its incentive characteristics are analyzed. Based on the theory of econometrics, an empirical model of incentive system was constructed, and the correlation and significance between the main core variables and incentive intensity are empirically tested. The results show that competition has a significant effect and positive effect on incentive level. Incentive level has a non-linear correlation with service cost and risk preference, within a certain range, the best incentive level is negatively related to them. [ABSTRACT FROM AUTHOR]

The delegating computation has become an irreversible trend, together comes the pressing need for fairness and efficiency issues. To solve this problem, we leverage game theory to propose a smart contract-based solution. First, according to the behavioral preferences of the participants, we design an incentive contract to describe the motivation of the participants. Next, to satisfy the fairness of the rational delegating computation, we propose a rational delegating computation protocol based on reputation and smart contract. More specifically, rational participants are to gain the maximum utility and reach the Nash equilibrium in the protocol. Besides, we design a reputation mechanism with a reputation certificate, which measures the reputation from multiple dimensions. The reputation is used to assure the client's trust in the computing party to improve the efficiency of the protocol. Then, we conduct a comprehensive experiment to evaluate the proposed protocol. The simulation and analysis results show that the proposed protocol solves the complex traditional verification problem. We also conduct a feasibility study that involves implementing the contracts in Solidity and running them on the official Ethereum network. Meanwhile, we prove the fairness and correctness of the protocol. [ABSTRACT FROM AUTHOR]

This paper proposes a closed-loop supply chain model to study the impact of product returns and awareness program on e-waste supply chain. The study focuses on the sustainability aspects of e-waste management and the effects such initiatives bring about to the environment at large. Reusing and recycling of collected products in manufacturing will improve the supply of scarce resources and reduce reliance on virgin raw materials. Engaging in CLSC can enhance brand reputation and competitiveness through sustainability while reducing the health risks to informal recycling workers by formalizing practices. The proposed model consists of a manufacturer, retailer, and third-party collector (TPC) under wholesale price and incentive contracts with deterministic demand. From the analysis it is observed that integrating a third-party collector with higher recycling rate boosts the total profit of the decentralized setting with a TPC. The centralized model, with a single decision maker, results in lower retail prices and higher collection rates compared to the decentralized models thereby commanding a higher overall profit. [ABSTRACT FROM AUTHOR]

This study aims to investigate the incentive mechanism of different availability payment methods applied in Public Private Partnership (PPP) contracts. We present a basic model in a multitask environment in which a risk-averse private contractor chooses two types of noncontractible efforts: one is unproductive, in the sense that it saves building cost but sacrifices social benefits; the other one is productive, as it reduces operating cost without social loss. We find that the PPP contract using separate charges for availability and performance is more desirable than using single unitary charge if the government can detect the social loss cause by unproductive effort. However, the latter brings about more social welfare over the former if the social loss is not observable to the government and the observable value of benefit-cost ratio of the unproductive effort is relatively larger than the benefit-cost ratio of the productive effort.

This study investigates the impact of fund sentiment beta (FSB) in delegated investment, which provides managed funds a novel grasp for formulating investment strategies. In a unified framework, it is shown that fund managers can exploit investors' sentiment with strategic choice of FSB: when investors are optimistic (pessimistic), the catering (contrarian) strategy delights investors, who are thus willing to invest more and pay more to fund managers. Funds with high sentiment sensitivity tend to have elevated volatility, which warns against its excessive usage. These results provide theoretical support to many empirical findings in literature. [ABSTRACT FROM AUTHOR]

Summary: As states plan to implement system-wide change of any kind, it is important to understand program directors' perspectives on challenges they face. This is especially true with quality improvement reforms. Much research has focused on quality improvement in medicine, but there is a gap in our knowledge about programs that treat individuals with drug or alcohol use. From 2007 to 2016, Maine contracted with selected substance use treatment programs using financial incentives to improve quality, with focus on treatment access, engagement, retention, and completion as measures of quality. Using surveys and in-depth interviews, this research documents strategies that programs used to improve performance and challenges faced in implementing reforms. Only programs that received federal block grant funding through the state to provide substance use treatment were eligible for an incentive contract, creating a natural experiment with non-block grant programs (non-incentive). Directors were interviewed in incentive (n = 13) and non-incentive programs (n = 12). Findings: Thematic analysis revealed that: (1) programs focused on quality improvement, incentive and non-incentive programs focused on different quality measures, (2) most of the reforms in both groups targeted improving treatment access and retention, and (3) programs faced substantial challenges in undertaking reforms. Despite efforts, many programs could not meet quality measures consistently over time and faced environmental and system barriers. Applications: Policy makers and program administrators will benefit from knowing the challenges of undertaking quality improvement initiatives and provide support for the programs. [ABSTRACT FROM AUTHOR]

This paper analyzes the effects of a regulatory cap on executive pay. We use a principal-agent model with moral hazard in which a firm and a manager bargain over an incentive contract, and we discuss the consequences of a nonbinding cap on bonus payments. We find that the bonus cap negatively affects the manager's effort choice and social welfare, even if the cap is introduced at a nonbinding level. [ABSTRACT FROM AUTHOR]

The introduction of an effective contract into the Russian public sector was due to the need to ensure compliance regarding wages and the quality of services provided. A review of existing studies on contract relationships within academia and practices to stimulate publication activity in Russian and foreign universities has shown that the key factors influencing scientific activity by university teachers are internal motivation, favorable academic environment, and relationships in a team. This paper analyzes two systems of stimulation of publication activity in higher education: a rating of scientific activity and a system of the effective contract. To analyze the introduction of an effective contract in educational organizations, researchers primarily use methods of content analysis of normative legal acts and sociological surveys. Based on data about the publication activity of teachers of the Institute over 6 years (3 years before the introduction of an effective contract and 3 years after), the authors conducted an econometric study of the impact of an effective contract on the quantity and quality of publications. To test the hypothesis the authors used a fixed effect model, a random effects model, and pooled ordinary least squares and least squares dummy variable. In this article the authors suggest a methodology for assessing the impact of an effective contract on the publication activity of university teachers. The authors conclude that salary and incentive payments, as well as participation in conferences and teacher training, have had a significant positive impact on the number of publications. The quality of publications was significantly influenced by incentive payments and professional development. The introduction of an effective contract had an impact only on the total number of publications.

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]

In an elegant study on salesforce incentive design, Steenburgh and Ahearne (2012) have argued that a multi‐faceted portfolio approach, based on the classification of workers into laggards, core, and star performers, can induce better result from the salesforce, compared to traditional approaches used in companies. In this paper, we construct a portfolio of incentive contracts with a three‐piece "linear–quadratic–linear" structure and study their incentive effects. It is well known that such contracts can extract 100% of the incremental benefits (i.e., optimal) when the performance levels of the agents are exponentially or uniformly distributed, but its effect is still unknown in the more natural case when performance levels are normally distributed. We show that the proposed three‐piece contract can capture more than 95.32% of the incremental benefits, obtained from the optimal incentive contract over fixed salary contract, when the cost functions of efforts are quadratic, and the performance levels are normally distributed. In this case, the more traditional three‐piece linear contract has a corresponding tight lower bound of 82.64%. Interestingly this is the same as the tight lower bound from a two‐piece linear contract, and thus adding more linear pieces to the contract does not help to improve the lower bound when the performance levels follow the normal distributions. This provides a partial theoretical explanation for the superiority of the portfolio approach advocated by Steenburgh and Ahearne (2012). [ABSTRACT FROM AUTHOR]

The degree of knowledge investment of partners is the key to success for cooperative innovation in project-based supply chain. The intangibility and unverifiability of their knowledge investment lead to the double moral hazard which will hinder the smooth progress of cooperative innovation. In order to stimulate the knowledge investment of partners for cooperative innovation in project-based supply chain, this paper has designed formal contract and relational contract of knowledge investment with principal-agent theory, and then the incentive effects of contracts are analyzed. We find that the formal contract cannot motivate their knowledge investment effectively; the degree of knowledge investment and the revenue of participants for cooperative innovation under the relational contract are not less than that under the formal contract for all discount rate; the incentive effect of the relational contract is getting more obvious as the discount rate increases. When the discount rate reaches a certain threshold value, the optimal degree of knowledge investment and revenue of participants for cooperative innovation can be achieved through the relational contract. At last, the effectiveness of the conclusions is verified through numerical example. [ABSTRACT FROM AUTHOR]

We consider a supply chain consisting of a supplier and a buyer. The buyer faces demand as a function of the selling price. There is risk of supply disruption, but the supplier can rebuild his capacity if he has invested for the capacity restoration before a disruption. To motivate the supplier to invest, the buyer can use one of two incentive contracts, namely direct and indirect. With a direct contract, the buyer provides a financial subsidy to share the supplier's capacity restoration cost when disruption occurs. With an indirect contract, the buyer adjusts the wholesale price in the case of disruption to stimulate the capacity restoration. Both contracts allow the buyer to adjust the order quantity in the case of disruption. We analyze decisions of each supply chain member under the two contracts with different commitment strategies (the ex ante commitment (EA) strategy under which the contract is signed before disruption and the ex post commitment (EP) strategy under which the contract is signed after disruption), and study how the supply disruption affects the buyer's selling price to end customers. We show that, from the perspective of either the supplier or the buyer, the incentive contract under the EA strategy is preferred by leading to a greater profit. Further, through numerical experiments, we recognize conditions for the fixed investment cost, probability of disruption, and regular wholesale price, under which each incentive contract encourages the supplier to invest for the capacity restoration, and brings greater profit to each supply chain member. [ABSTRACT FROM AUTHOR]

Abstract Motivated by real-world observations of different contract offers, we conduct a lab experiment to examine a principal's contract choice and agent effort in both long- and short-term employment relationships, implemented as one-shot and repeated games. We find that a piece-rate contract has the strongest incentive effect on short-term agents' effort and is the principals' dominant choice. Nevertheless, the bonus contract works almost as well as the piece-rate contract for long-term relationships, but not so well for short-term relationships. In addition, the bonus contract's effect on effort is mainly driven by the bonus component, suggesting that a fixed wage alone is not an effective mechanism to improve workers' performance. [ABSTRACT FROM AUTHOR]

QoS-aware service selection seeks to find the optimal service providers to achieve the optimization goal of a service requester, such as the maximization of utility, while satisfying global QoS requirements. Service providers are usually self-interested and have some private information, such as minimum prices, that would significantly factor into the decision making of the service requester. Thus, service requesters face a decision making dilemma with incomplete information. Recent work has used iterative combinatorial auctions to address this problem. However, such studies do not sufficiently consider that the service requester can elicit the private information from service providers by observing their actions. This can help the service selection process achieve better outcomes. In this paper, we propose a type of incentive contract that can motivate the service providers to offer the QoS and prices that the service requester prefers. Based on the incentive contracts, we propose an incentive mechanism for effective service selection. In the mechanism, a service requester offers a set of incentive contracts to the service providers and then elicits their private information based on their responses to the incentive contracts. The process is iterated until the service requester finally obtains a solution that fulfills the global QoS requirements. Experimental results show that the incentive contracts have a positive impact on both service requesters and providers and that the incentive mechanism outperforms the existing combinatorial auction-based approaches in finding optimal solutions. [ABSTRACT FROM AUTHOR]

Highlights • How a manufacturer motivates dealers to exert their efforts is studied for handling returned new-products. • The optimal incentive contracts are designed by utilizing principal–agent theory. • The stronger the degree of competition between the dealers is, the higher the dealers' effort levels are. • The share obtained by each dealer is negatively correlated with the uncertainty factors. • The incentive cost and total agency cost can be decreased by using the double-factor incentive contracts. Abstract Focusing on the principal–agent problem in handling new-products returned by customers in a reverse supply chain with one manufacturer and two competing dealers, we investigate how a manufacturer motivates her dealers to exert their efforts to handle and sell the returned new-products using mathematical modelling. By taking into consideration the dealers' individual rationalities, we design optimal incentive contracts under both symmetric and asymmetric information and obtain the following insights. In the symmetric information situation, dealers' effort levels are identical to those maximising the expected overall profit of the supply chain. In the asymmetric information situation, however, the dealers' effort levels are lower than the supply chain optimum. Further, in the case of intensifying competition between the dealers, their effort levels increase, while each dealer' revenue share received from the manufacturer decreases and the risk, incentive and total agency costs of the entire supply chain tend to diminish. The revenue share is inversely correlated with return uncertainties. When we introduce another random environmental factor affecting returns into the incentive contract, this revenue share increases with a rise in dealers' effort levels, while the above-mentioned costs of the entire system decline and this improves the supply chain system coordination. The incorporation of fairness into the principal–agent model promotes a further increase in the dealers' effort levels, which is proved using the fixed-point theorem. Finally, we provide an example to demonstrate the main results. [ABSTRACT FROM AUTHOR]

This article analyses the effects of a regulatory cap on executive pay when the agent is loss averse. I use a principal–agent model with moral hazard in which a principal and an agent bargain over an incentive contract. I show that even a non-binding cap on the agent’s payments can have consequences for the bargained outcome and consequently for the effort the agent exerts. [ABSTRACT FROM AUTHOR]