Optimal Incentive Contracts With Bonus Caps

• 成果类型: Article
• 署名作者: Chi, Chang Koo; Olsen, Trond E.
• 署名单位: Yonsei University; Norwegian School of Economics (NHH)
• 刊物名称: RAND JOURNAL OF ECONOMICS
• ISSN/ISSBN: 0741-6261
• DOI: 10.1111/1756-2171.12491
• 发表日期: 2025
• 页码: 55-73
• 关键词: Moral hazard; 1st-order approach; INFORMATION; AGENCY

摘要

This article investigates contracts between two risk-neutral parties with bounded bonus payments. If the available signal about the agent's behavior satisfies a novel condition, the monotone likelihood ratio transformation property, the optimal contract takes a simple form irrespective of whether the first-order approach (FOA) is valid or not. The contract rewards the agent the maximum bonus if the signal's likelihood ratio exceeds a threshold, which in contrast to the FOA contract is not necessarily zero. We next derive a condition for a signal to enhance the efficiency of a contract. Applications in relational contracting and law enforcement illustrate our findings.