Contract Design Research Articles

Variance insurance contracts

We study the design of an optimal insurance contract in which the insured maximizes her expected utility and the insurer limits the variance of his risk exposure while maintaining the principle of indemnity and charging the premium according to the expected value principle. We derive the optimal policy semi-analytically, which is coinsurance above a deductible when the variance bound is binding. This policy automatically satisfies the incentive-compatible condition, which is crucial to rule out ex post moral hazard. We also find that the deductible is absent if and only if the contract pricing is actuarially fair. Focusing on the actuarially fair case, we carry out comparative statics on the effects of the insured's initial wealth and the variance bound on insurance demand. Our results indicate that the expected coverage is always larger for a wealthier insured, implying that the underlying insurance is a normal good, which supports certain recent empirical findings. Moreover, as the variance constraint tightens, the prudent insured cedes less losses, while the insurer is exposed to less tail risk.

Optimal Stockist Selection and Contract Design: Evidence from a Supply Chain in India

Optimal Stockist Selection and Contract Design: Evidence from a Supply Chain in India

Incentive contract design considering quotas production: A principal-agent perspective

The quality of primary products in a supply chain is determined by the agent and the principal. Simultaneously, there are quota production constraints on the principals. Our discourse centers on the design of incentive contracts for agents within these supply chains. We derived the parameters describing the contract, level of effort, profits for both sides, and the minimum requirements of the principal for the proportion of high-quality primary products. This study compares the decision-making paradigms of agents and principals in various contexts. The results show that decision-making mechanisms are strongly influenced by individual effort costs, various internal and external organizational variables, and the interplay of efforts on both sides. Using numerical experiments, we investigate the effects of different situations between clients and contractors on contracting and effort strategies. The results show that when the agent exerts unilateral effort, reasonable incentive contracts can spur the agent to increase effort and thus increase the proportion of high-quality primary products. In the case of bilateral efforts, a well-calibrated contract design benefits the agent (bearing less risk). For the principal, the expected profit increases in most cases. When considering the quota production, it is necessary to set an appropriate limit on the proportion of high-quality primary products.

Contract Design in Influencer Marketing

Contract Design in Influencer Marketing

Contract design and order decision of online retailer's sharing surplus demand with offline retailer

Contract design and order decision of online retailer's sharing surplus demand with offline retailer

Framework Design of Blockchain Intelligent Technology for Chinese Language Teaching Management System

In order to solve the problems of security and efficiency in Chinese teaching and management, this paper uses the intelligent technology of block chain to achieve this goal. First of all, this project intends to use block chain technology for distributed storage to solve the problems of data tampering and embezzlement in the traditional system. Secondly, through the design of intelligent contract to standardize the management of system operation, enhance the real-time and fairness of the interactive process. In addition, the distributed authentication technology is adopted to ensure the integrity of the user's identity and the clarity of the information. Finally, the safety evaluation 8.68 and the efficiency evaluation 8.65 are given, which proves that the proposed method is effective.

FedSC: Game-Theoretic Design of Sustainable Contracts for Unreliable Federated Edge Learning

FedSC: Game-Theoretic Design of Sustainable Contracts for Unreliable Federated Edge Learning

Design of Multi-Term Spectrum Resource Trading Contracts in UAV-Enabled IoT

Design of Multi-Term Spectrum Resource Trading Contracts in UAV-Enabled IoT

Incentive Mechanism of Online Leaning Based on Blockchain

Incentive mechanism plays an important role in online education. In order to better play the role of the incentive mechanism, it must rely on contemporary information technology, such as blockchain technology, big data technology and so on. In this paper an incentive mechanism based on blockchain technology is proposed with which can establish a good trust relationship between multiple learning resource nodes and improve data security during the process of online education. A structure of online learning resource chain is proposed in this paper also. And a dynamic optimization framework of learning resource chain by analyzing a series of problems faced in the process of online education is formed. The private chain of learning resource is constructed on the basis of the design of incentive smart contract. The learners and the builders of learning resources can obtain the dynamic rewards by performing a smart method of contract. The experimental results show that the incentive method based on blockchain can well mobilize participants’ enthusiasm for resource construction and dynamic improvement of resource quality, and effectively solve a series of problems in the learning process.

Design of Robust Var Reserve Contract for Enhancing Reactive Power Ancillary Service Market Efficiency

Design of Robust Var Reserve Contract for Enhancing Reactive Power Ancillary Service Market Efficiency

The Price of Power: How Managerial Taxes Affect Debt Contract Provisions

We examine how income taxes—both managerial and corporate—influence the design of firms’ debt contracts and their use of financial covenants in particular. Both levels of taxation have the potential to exacerbate conflicts of interest among creditors, shareholders, and managers and, consequently, should influence the design of their debt contracts. Specifically, a decrease in corporate and an increase in managerial taxes encourage managers to take more risk, accordingly, we predict and find that loans issued following such changes in taxation are more likely to include performance rather than capital covenants. A series of cross-sectional tests provide further insight into the effect of both levels of taxation, and corroborate our main inferences. Overall, our study demonstrates how debt contract layouts change in response to arguably exogenous changes in income taxes—and, in turn, managers’ preferences—for risk.

SCEditor: A Graphical Editor Prototype for Smart Contract Design and Development

SCEditor: A Graphical Editor Prototype for Smart Contract Design and Development

Multi-Dimensional Contract Design for Energy-Efficient Wireless Sensing in Consumer-Centric E-Commerce Systems

Multi-Dimensional Contract Design for Energy-Efficient Wireless Sensing in Consumer-Centric E-Commerce Systems

Market Development and Revenue-Sharing Contract Design for Mobile Game Supply Chains

Market Development and Revenue-Sharing Contract Design for Mobile Game Supply Chains

Contract design between relief organisations and private-sector vendors: A humanitarian logistics framework

Amid increasing threats from natural disasters, the demand for relief supplies is growing quickly. As such, private-sector collaborations have been an efficient way for relief organisations to mitigate the burden of supply procurement and inventory. However, due to the complexity of disasters, such collaboration contracts are not one-size-fits-all. Based on our field investigation and literature review, we summarize two important factors, the relief organisation’s objective and inventory management, which should determine the design of the contract. Each factor has three important elements, so we can build a framework for the corresponding nine kinds of contracts and propose their models. Through a common numerical experiment, we make comparisons and further clarify their characteristics. The results of this analysis may be helpful in determining which kind of contract is most suitable to promote collaboration between relief organisations and private-sector entities in different humanitarian situations.

Communication and hidden action: A credit market experiment

We study the impact of pre-contractual communication on market outcomes when economic relationships are subject to hidden action. Our experiment is framed in a credit market context and borrowers (second movers) can communicate with lenders (first movers) prior to entering the credit relationship. Communication reduces moral hazard (strategic default) and increases trust (credit provision) in an environment where opportunistic behavior by borrowers is revealed ex-post to lenders. By contrast, in an environment where strategic defaults are hidden behind a veil of uncertainty, we find a substantially weaker impact of communication. Borrowers are more likely to renege on repayment promises when they can hide opportunistic behavior from lenders. As a consequence, lenders extend less credit to borrowers who promise to repay. Hidden action undermines the positive effect of communication on market outcomes. Our findings have implications for the design of contracts and how to structure relationships with a risk of hidden action: for pre-contractual communication to unfold its full potential it needs to go hand-in-hand with post-contractual monitoring.

DEMAND FOR AQUACULTURE INSURANCE AND BARRIERS’ EFFECTS AMONG FISH FARMERS IN LAGOS, NIGERIA

Boosting aquaculture insurance, as a financial instrument, can assist the sustenance of aquatic food demand in order to cushion fish farmers’ income, and ensure adequate farm property safety in Nigeria. This study examined the barriers affecting aquaculture insurance and its related demand determinants, with empirical evidence drawn from fish farmers in Lagos State. The study employed a survey approach cum multiphase sampling technique. A descriptive statistic and Friedman’s rank test were adopted in the data analysis. This study contributes immensely with the tabular and graphical models that explain the barriers affecting aquaculture insurance and demand determinants for aquaculture insurance in Lagos State, Nigeria. While a major barrier, from the findings, to demand for aquaculture insurance was recorded due to high cost of insurance premium, poor access to the policy, and the likes; low awareness, poor insurance regulation, poor claims settlement and low financial literacy, among fish farmers, were recorded for demand determinants for aquaculture insurance. The study recommended that aquaculture underwriters should enhance and expand their value-chain processes in a bid to bolster fish farmers’ production capacities. However, the government should expand the subsidy net for more fish farmers to have access. With the simplicity of insurance contract design, aquaculture underwriters will gain attraction from farmers, which will, in turn, generate improved premium and their potential profitability.

Sunk Cost Effect, Self-Control, and Contract Design

This article examines the role of the sunk cost effect as a commitment device in mitigating the self-control problem and analyzes its implications for optimal contract design. Consumers may anticipate the effect ex ante and strategically use it to mitigate their self-control problems. Although the sunk cost effect may lead to a loss of consumption flexibility in the event of high consumption costs, it can serve as a commitment device to enforce self-control. A firm's optimal policy should balance the consumer's demand for flexibility in consumption with the demand for commitment. Under a simple fixed-fee contract, sunk costs have a nonmonotonic effect on profits for investment goods; that is, profits first decrease and then increase with the sunk cost effect. The firm can use a two-part tariff or a refundable fixed-fee contract to mitigate the sunk cost effect. This article also compares the implications of alternative psychological mechanisms underlying the sunk cost effect (regret-based vs. memory-cue-based) for contract design.

Enhancing Data Freshness in Air-Ground Collaborative Heterogeneous Networks through Contract Theory and Generative Diffusion-Based Mobile Edge Computing.

Mobile edge computing is critical for improving the user experience of latency-sensitive and freshness-based applications. This paper provides insights into the potential of non-orthogonal multiple access (NOMA) convergence with heterogeneous air-ground collaborative networks to improve system throughput and spectral efficiency. Coordinated resource allocation between UAVs and MEC servers, especially in the NOMA framework, is addressed as a key challenge. Under the unrealistic assumption that edge nodes contribute resources indiscriminately, we introduce a two-stage incentive mechanism. The model is based on contract theory and aims at optimizing the utility of the service provider (SP) under the constraints of individual rationality (IR) and incentive compatibility (IC) of the mobile user. The block coordinate descent method is used to refine the contract design and complemented by a generative diffusion model to improve the efficiency of searching for contracts. During the deployment process, the study emphasizes the positioning of UAVs to maximize SP effectiveness. An improved differential evolutionary algorithm is introduced to optimize the positioning of UAVs. Extensive evaluation shows our approach has excellent effectiveness and robustness in deterministic and unpredictable scenarios.

Supply chain contract design considering carbon tax policy under demand information asymmetry

AbstractOur paper constructs a low‐carbon supply chain (LSC) with a single manufacturer producing low‐carbon products and a single retailer. Assume that the retailer possesses private demand information and consider two cases: The manufacturer or the retailer determines the low‐carbon product's retail price. By constructing principal‐agent models, we obtain the optimal menu of contracts in each case. The impacts of the carbon tax rate and information asymmetry on LSC members' equilibrium solutions and expected profits are discussed. The results show that, given certain conditions, both the LSC members may obtain more expected profits under information asymmetry by introducing appropriate contracts.