کد مقاله کد نشریه سال انتشار مقاله انگلیسی نسخه تمام متن
478292 1446046 2013 10 صفحه PDF دانلود رایگان
عنوان انگلیسی مقاله ISI
Solving nonlinear principal-agent problems using bilevel programming
موضوعات مرتبط
مهندسی و علوم پایه مهندسی کامپیوتر علوم کامپیوتر (عمومی)
پیش نمایش صفحه اول مقاله
Solving nonlinear principal-agent problems using bilevel programming
چکیده انگلیسی


• We show that the principal agent problem is a bilevel nonlinear program.
• We develop a numerical nonlinear principal agent problem (not tractable to solve in closed form).
• We solve the problem using the ellipsoid algorithm.
• We approximate LEN model and show that LEN does not closely approximate our numerical results.
• We conclude that our method can provide insights not achievable with LEN or closed form solutions.

While significant progress has been made, analytic research on principal-agent problems that seek closed-form solutions faces limitations due to tractability issues that arise because of the mathematical complexity of the problem. The principal must maximize expected utility subject to the agent’s participation and incentive compatibility constraints. Linearity of performance measures is often assumed and the Linear, Exponential, Normal (LEN) model is often used to deal with this complexity. These assumptions may be too restrictive for researchers to explore the variety of relationships between compensation contracts offered by the principal and the effort of the agent. In this paper we show how to numerically solve principal-agent problems with nonlinear contracts. In our procedure, we deal directly with the agent’s incentive compatibility constraint. We illustrate our solution procedure with numerical examples and use optimization methods to make the problem tractable without using the simplifying assumptions of a LEN model. We also show that using linear contracts to approximate nonlinear contracts leads to solutions that are far from the optimal solutions obtained using nonlinear contracts. A principal-agent problem is a special instance of a bilevel nonlinear programming problem. We show how to solve principal-agent problems by solving bilevel programming problems using the ellipsoid algorithm. The approach we present can give researchers new insights into the relationships between nonlinear compensation schemes and employee effort.

ناشر
Database: Elsevier - ScienceDirect (ساینس دایرکت)
Journal: European Journal of Operational Research - Volume 230, Issue 2, 16 October 2013, Pages 364–373
نویسندگان
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