Optimal Contracts with Fairness Concerns
Optimal Contracts with Fairness Concerns

Author: Yin Chi Tam

Publisher:

Published: 2023

Total Pages: 0

ISBN-13:

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In an organization, the principal may care about both efficiency and fairness. In this paper, we study the optimal contracts between a principal and multiple agents when the principal favors a more even expost wage distribution. We characterize the principal's fairness concern by a convex shading cost function and it is shown that the optimal contract is either a fixed wage contract or an incentive contract. Moreover, interior solution exists under certain conditions where the principal would provide both fixed and incentive contracts to agents. We also show that the optimal contracts tend to be more hybrid if the shading cost becomes more convex and the fraction of the incentive contract would decrease as the principal cares more about fairness.

Wage Bargaining when Workers Have Fairness Concerns
Wage Bargaining when Workers Have Fairness Concerns

Author: Martina N. Gogova

Publisher:

Published: 2014

Total Pages: 29

ISBN-13:

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We analyze optimal labor contracts when workers are inequity averse towards the employer. Welfare is maximized for an equal sharing rule of surplus between the worker and the firm. That is, profit sharing is optimal even if effort is contractible. If the firm can make a take-it-or leave-it offer, the optimal contract is also dependent on output but always suboptimal with respect to welfare. When the parties bargain over the contract, the optimal division of surplus is more equitable compared to the purely self-regarding case. Moreover, the agreement approaches the welfare-optimal contract as the parties' bargaining power converges. Our findings imply that raising the bargaining power of the less powerful party may increase welfare.

A Theory of Fair CEO Pay
A Theory of Fair CEO Pay

Author: Pierre Chaigneau

Publisher:

Published: 2023

Total Pages: 0

ISBN-13:

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This paper studies optimal executive pay when the CEO is concerned about fairness: if his wage falls below a perceived fair share of output, the CEO suffers disutility that is increasing in the discrepancy. Fairness concerns do not lead to fair wages always being paid -- to induce effort, the firm threatens the CEO with unfair wages if output is sufficiently low. The optimal contract sometimes involves performance shares: the CEO is paid a constant share of output if it is sufficiently high, but the wage drops discontinuously to zero if output falls below a threshold. Even if the incentive constraint is slack, the optimal contract continues to involve pay-for-performance, to address the CEO's fairness concerns and ensure his participation. Thus, the firm can implement strictly positive levels of effort "for free." This rationalizes pay-for-performance even if the CEO is intrinsically motivated and does not need effort incentives.

The Oxford Handbook of Pricing Management
The Oxford Handbook of Pricing Management

Author: Özalp Özer

Publisher: OUP Oxford

Published: 2012-06-07

Total Pages: 976

ISBN-13: 0191634271

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The Oxford Handbook of Pricing Management is a comprehensive guide to the theory and practice of pricing across industries, environments, and methodologies. The Handbook illustrates the wide variety of pricing approaches that are used in different industries. It also covers the diverse range of methodologies that are needed to support pricing decisions across these different industries. It includes more than 30 chapters written by pricing leaders from industry, consulting, and academia. It explains how pricing is actually performed in a range of industries, from airlines and internet advertising to electric power and health care. The volume covers the fundamental principles of pricing, such as price theory in economics, models of consumer demand, game theory, and behavioural issues in pricing, as well as specific pricing tactics such as customized pricing, nonlinear pricing, dynamic pricing, sales promotions, markdown management, revenue management, and auction pricing. In addition, there are articles on the key issues involved in structuring and managing a pricing organization, setting a global pricing strategy, and pricing in business-to-business settings.

Fuzzy Sets and Operations Research
Fuzzy Sets and Operations Research

Author: Bing-Yuan Cao

Publisher: Springer

Published: 2019-03-18

Total Pages: 420

ISBN-13: 3030027775

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This book presents the latest advances in applying fuzzy sets and operations research technology and methods. It is the first fuzzy mathematics textbook for students in high school and technical secondary schools. Part of Springer’s book series: Advances in Intelligent and Soft Computing, it includes the 36 best papers from the Ninth International Conference on Fuzzy Information and Engineering (ICFIE2017), organized by the Fuzzy Information and Engineering Branch of Operations Research Society of China and Operations Research Society of Guangdong Province in China. Every paper has been carefully peer-reviewed by leading experts. The areas covered include 1. Fuzzy Measure and Integral; 2. Fuzzy Topology and Algebras; 3. Classification and Recognition; 4. Control and Fuzziness; 5. Extension of Fuzzy Set and System; 6. Operations Research and Management (OR); The book is suitable for college, masters and doctoral students; educators in universities, colleges, middle and primary schools teaching mathematics, fuzzy sets and systems, operations research, information and engineering, as well as management, control. Discussing case applications, it is also a valuable reference resource for professionals interested in theoretical and practical research.

Optimal Incentive Contracts in the Presence of Career Concerns
Optimal Incentive Contracts in the Presence of Career Concerns

Author: Robert Gibbons

Publisher:

Published: 1991

Total Pages: 70

ISBN-13:

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This paper studies career concerns -- concerns about the effects of current performance on future compensation -- and describes how optimal incentive contracts are affected when career concerns are taken into account. Career concerns arise frequently: they occur whenever the market uses a worker's current output to update its belief about the worker's ability and competition then forces future wages (or wage contracts) to reflect these updated beliefs. Career concerns are stronger when a worker is further from retirement, because a longer prospective career increases the return to changing the market's belief. In the presence of career concerns, the optimal compensation contract optimizes total incentives -- the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract. Thus, the explicit incentives from the optimal compensation contract should be strongest when a worker is close to retirement. We find empirical support for this prediction in the relation between chief-executive compensation and stock-market performance.

Optimal Contracts with Random Auditing
Optimal Contracts with Random Auditing

Author: Andrei Barbos

Publisher:

Published: 2015

Total Pages: 60

ISBN-13:

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In this paper we study an optimal contract problem under moral hazard in a principal-agent framework where contracts are implemented through random auditing. This monitoring instrument reveals the precise action taken by the agent with some nondegenerate probability r, and otherwise reveals no information. We characterize optimal contracts with random perfect monitoring under several information structures that allow for moral hazard and adverse selection. We evaluate the effect of the intensity of monitoring, as measured by r, on the value of the optimal contract. We show that more intense monitoring always increases the value of a contract when the principal can commit to make payments even if the an evaluation reveals that the agent took an action not allowed by the terms of the contract. When such commitment is infeasible and in equilibrium the agent shirks under some realizations of his type, the value of a contract may decrease in r.