Comment on Optimal Contract to Induce Continued Effort

• 成果类型: Article
• 署名作者: Cao, Ping; Tian, Feng; Sun, Peng
• 署名单位: Chinese Academy of Sciences; University of Science & Technology of China, CAS; University of Michigan System; University of Michigan; Duke University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3927
• 发表日期: 2022
• 页码: 796-808
• 关键词: Dynamic; moral hazard; optimal control; jump process

摘要

In this comment, we first use a counterexample to demonstrate that the optimal contract structure proposed in section 4 of the paper [Sun P, Tian F (2018) Optimal contract to induce continued effort. Management Sci. 64(9):4193-4217] can be wrong when the two players' discount rates are different. We then specify correct optimal contract structures, which involve generalizing the contract space to allow random termination. Numerical study with a wide range of model parameters illustrates that such a random termination only occurs sparingly in optimal contracts. Moreover, the suboptimality gap, measured by the relative improvement of the optimal contract over the best contract without random termination, is extremely small.