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Article: Comment on “Optimal Contract to Induce Continued Effort”

TitleComment on “Optimal Contract to Induce Continued Effort”
Authors
KeywordsDynamic
Moral hazard
Optimal control
Jump process
Issue Date2021
PublisherINFORMS. The Journal's web site is located at http://mansci.pubs.informs.org
Citation
Management Science, 2021, v. 68 n. 1, p. 796-808 How to Cite?
AbstractIn 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.
Persistent Identifierhttp://hdl.handle.net/10722/306621
ISSN
2023 Impact Factor: 4.6
2023 SCImago Journal Rankings: 5.438
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorCao, P-
dc.contributor.authorTian, F-
dc.contributor.authorSun, P-
dc.date.accessioned2021-10-22T07:37:14Z-
dc.date.available2021-10-22T07:37:14Z-
dc.date.issued2021-
dc.identifier.citationManagement Science, 2021, v. 68 n. 1, p. 796-808-
dc.identifier.issn0025-1909-
dc.identifier.urihttp://hdl.handle.net/10722/306621-
dc.description.abstractIn 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.-
dc.languageeng-
dc.publisherINFORMS. The Journal's web site is located at http://mansci.pubs.informs.org-
dc.relation.ispartofManagement Science-
dc.subjectDynamic-
dc.subjectMoral hazard-
dc.subjectOptimal control-
dc.subjectJump process-
dc.titleComment on “Optimal Contract to Induce Continued Effort”-
dc.typeArticle-
dc.identifier.emailTian, F: fengtian@hku.hk-
dc.identifier.authorityTian, F=rp02884-
dc.description.naturepostprint-
dc.identifier.doi10.1287/mnsc.2020.3927-
dc.identifier.scopuseid_2-s2.0-85124206273-
dc.identifier.hkuros328426-
dc.identifier.volume68-
dc.identifier.issue1-
dc.identifier.spage796-
dc.identifier.epage808-
dc.identifier.isiWOS:000770236200020-
dc.publisher.placeUnited States-

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