讲座题目:Robust Contract Designs: Linear Contracts for Sales Force Compensation

题目:Robust Contract Designs:Linear Contracts for Sales Force Compensation

主讲人:虞义敏博士 香港城市大学商学院管理科学系





Weconsider sales force compensation where the principal has parameter uncertaintyover the output: the parameters of the output probability distribution are inan ellipsoidal uncertainty set. The principal evaluates possible contracts bytheir worst-case performance over all possible parameters in the uncertaintyset. Similarly, the incentive compatibility condition for the agent must holdfor all possible parameters in the uncertainty set. We assume risk-neutralityand limited liability for the agent. Interestingly, we find that the optimalrobust contract is a linear contract -- paying the agent with a base paymentand a fixed share of the output. Moreover, we show that linear contracts arethe only type of contracts that are robust to the parameter uncertainty. Weprovide a new explanation for the popularity of linear contracts in practice.We also provide the analysis for the trade-off between robustness andworst-case performance. Our results are robust to a variety of settings,including when the agent has a mean-variance risk averse utility. Our paperalso introduces a flexible modeling approach for robust contract designs withparameter uncertainty.

Keywords: salesforce incentives, robust contract design, linear contracts, worst-casecriterion


Dr.YU Yimin is an assistant professor(tenured) at Department of ManagementScience, College of Business in City University of Hong Kong. He received hisPh.D. degree from University of Minnesota, Twin Cities and Bachelor of Sciencedegree from University of Science and Technology of China. His research focuseson supply chain management and service operations. This includes topics onoptimal design of inventory-production systems and emerging supply chain andpricing strategies. His current research projects explore how incompleteinformation affects business strategies, and in general the robustness ofmicroeconomic models, including contracting problems, mechanism designs andtheir applications, in the presence of model uncertainty. His publicationsappear in leading journal, such as Marketing Science, Production and OperationsManagement, IIE transactions, etc.