Bilateral Moral Hazard Research Articles

Multi-stage dynamic evolution of green financial system from the perspective of bilateral moral hazard

In order to improve the regulatory efficiency of the government in the construction process of the green financial system, the multi-stage dynamic evolution game model of green financial system from the perspective of bilateral moral risk is constructed and analyzed. It is found that cost-controllable and profitable collaborative innovation are the fundamental to realize the sustainable cooperation of green innovation between financial institutions and carbon emission enterprises. The introduction of reward and punishment mechanism and transfer payment mechanism for government is conducive to promoting the willingness of financial institutions and carbon emission enterprises to cooperate in green innovation. However, with the increase of appeal willingness of carbon emission enterprises and the cost reduction of appeal, although the risk of illegal arbitrage of financial institutions can be curbed to a certain extent, there is a risk of deterioration in the collaborative relationship between financial institutions and carbon emission enterprises.

Compensation contracts for multiple agents with helping effort under bilateral moral hazard

This paper aims to investigate the compensation contract design problem consisting of a risk neutral firm and two risk averse workers with and without helping effort in the presence of bilateral moral hazard by Stackelberg game in the framework of principal-agent theory. Three classes of contract models are established in three modes, which reflect whether helping effort takes place between both workers and whether personal performance evaluation contract or relative performance evaluation contract is applied by the firm. By solving models, optimal efforts of the firm, optimal individual and workgroup incentive coefficients, optimal personal effort and helping effort, and the firm’s expected profit are deduced in different modes. In addition, a numerical experiment is investigated by focusing on the impacts of effort cost coefficients of the firm and the worker, and bilateral moral hazard on optimal compensation contracts and profit of the firm in three modes, which provide some valuable management insights about optimal strategy for the firm. The main findings show that the relative performance evaluation contract works better than the personal performance evaluation contract when the two workers is cooperative, which means that helping effort takes place between the two workers. Furthermore, a higher marginal contribution can motive the worker to make more helping effort for her partner, thus achieving win-win outcome based on the relationship of cooperation. For the firm, the optimal strategy is to design the relative performance evaluation contract for both workers and motivate them to make cooperative relationship by exerting helping effort under bilateral moral hazard. Moreover, bilateral moral hazard decreases the motivations of the workers but increases the firm’s profit. This proposed work contributes to the investigation of compensation contract design by combining three critical factors, that is, multiple agents, bilateral moral hazard, and helping effort. The findings provide some theoretical guidance on how to set up optimal mechanism between the firm and multiple agents in the presence of bilateral moral hazard and how to reduce the adverse influence of bilateral moral hazard on participants’ profits.

Reward Mechanism in Multi-agent Information System Integration Based on Bilateral Moral Hazard

Bilateral moral hazard is constructed over undertaking information system integration and resource suppliers based on compensation. Invariable compensation is needed to encourage the participators in making appropriate efforts. From the angle of knowledge accumulation, the article built a remuneration model and further obtain the operational mechanism for such an integration. Conclusion indicates that the optimal effort level of original service provider and the intervention of remuneration does cast impacts on the integration process in terms of the commissioning party. Moreover, it brought forward the optimal system pathway on which best efforts could implement its functions with the effect of bilateral moral hazard.

Research on the Loss Sharing Contract in Supply Chain Under Asymmetric Information

Abstract In this study, the coordination contract of internal and external losses of supply chain under asymmetric information is studied. Firstly, the profit functions of supplier and manufacturer are established respectively. Secondly, the contract under unilateral and bilateral moral hazard is designed. Finally, a numerical example is given to analyze the coordination contract. It is proved that the overall coordination of supply chain can be achieved through loss sharing contract, and the quality level and overall profit can be improved.

Incentive mechanism on customer knowledge collaborative acquisition with relational contract under double-sided moral hazard in big data context

In the big data context, the customer data are distributed out of the enterprise boundary. It’s the key to maintain competitive advantage that applying the customer knowledge acquisition to the enterprise innovation. From the perspective of the supply chain, there is complementarity of customer knowledge for the manufacturer and the retailer. Sharing the collaborative acquisition of customer knowledge can improve the efficiency of both sides, and even of the whole system. However, since the imbalance of the information between both sides and the imbalance aggravated because of the pending verification of customer big data value, result in speculation behaviors that called bilateral moral hazard. Reasonable design of synergy incentive contract is an important way to solve bilateral moral hazard in customer knowledge collaborative acquisition. As the big data customer knowledge needs to be examined, the relational contract model of customer acquisition knowledge is established and contract analysis of the incentive effects between the formal contract and relational contract is made. Consequently, the incentive of formal contract will result in system profit loss, while relational contract incentive has positive inspiration for collaboration between the manufacturer and the retailer, which can improve the efficiency of the acquisition. In the process, when the discount rate is large enough to reach a certain threshold, the optimal system revenue can be achieved through the relational contract.

An uncertain wage contract model for risk-averse worker under bilateral moral hazard

This paper investigates a wage mechanism design problem faced by a risk neutral firm (he) who employs a risk averse worker (she) to sell products for him. The effort levels of both the firm and the worker are unobservable to each other, which results in bilateral moral hazard. The firm offers a wage contract menu to the worker with the objective of maximizing his expected profit. The results show that the firm will provide the same wage contract to the worker when the worker's effort is observable regardless of the market condition being full or private information. The optimal wage contract is related to the worker's risk averse level when the bilateral moral hazard exists. The information values of the worker's effort and the market condition are studied, respectively. The results show that the firm benefits from the worker's observable effort under full information and only when the sales uncertainty is sufficiently low, can the firm profit from that under private information. Moreover, only if the cost coefficient of the firm's effort is sufficiently high, the firm can benefit from full information in the scenario when the worker's effort is unobservable.

Moral hazard and sorting in a market for partnerships

We examine how equilibrium sorting patterns in a matching market for partnerships are impacted by the presence of bilateral moral hazard in a repeated production setting. We find that this impact depends on how the cost of moral hazard manifests itself—whether efficient effort is not feasible or desirable from the beginning, or whether inefficient effort is resorted to only as a punishment equilibrium. Which of these is the case depends on both the details of the technology and the contractual environment. In the former case, the presence of moral hazard moves the market away from positive sorting. In the latter case, whether moral hazard favors positive or negative sorting depends on how the power of incentives needed to implement effort varies with the observable types of the agents.

Bilateral Intergenerational Moral Hazard: Empirical Evidence from China

Bilateral intergenerational moral hazard (BIMH) has been considered as one of the most important reasons for the sluggish development of private long-term care (LTC) insurance. On the one hand, the parent, who relies on child effort to avoid admission to the nursing home, may abstain from purchasing LTC insurance. On the other hand, buying LTC insurance coverage serves to protect the available bequest from the cost of LTC, thus weakening child interest in providing informal care as a substitute for formal LTC. In this paper, we investigate whether BIMH with respect to LTC exists in China. A survey conducted in October 2012 in Shanghai suggests that respondents may well exhibit BIMH as predicted by Courbage and Zweifel. However, contrary to their predictions, neither a decrease in parental wealth nor a decrease in the child’s expected inheritance are found to trigger net BIMH effects. These findings have important implications both for insurance companies planning to develop LTC products and for Chinese public policy concerning LTC.

Contracting in the wine supply chain with bilateral moral hazard, residual claimancy and multi-tasking

This paper takes a quasi-case-study approach to stylised wine industry facts to assess predictions about the optimal sharing rule from a principal –agent model with residual claimancy. An optimal sharing contract is developed between a grape grower and a winery, when a risk-averse grower allocates efforts among multiple activities that differ in measurability, while double-sided moral hazard is assumed to be present. Several comparative static results regarding the Pareto optimal share are in line with certain production practices and properties of observed contracts that are found in markets where residual claimancy is used, namely in Australia, California, New Zealand and France.