Entrepreneurs To Research, Incentive And Restraint Mechanisms

The theory of principal and agent is one of the most popular theories in the last twenty years. The incentive and constraint of executive is one of the most important applications of the theory of principal and agent, and so is the performance evaluation of executive. In our country, the compensation of executive is separated from the firm performance. For this reason, it is more severe that the conflicts between principal and agent, the damaging behalf of its shareholder, and the lack of developing resource. Through a series of ways have been executed, the conflicts are still exist for some reasons. This thesis is intended to solve the conflicts, evaluate the executive performance, incentive the executive by ownership of the stock.The thesis is organized as follows:In Chapter one, we give a brief description of the theory of principal and agent. First, we give a review of the developing process of the theory, then we give a review of our country's executive compensation, and point out the signification of incentive and constraint of executive to our country's enterprise reforming.In Chapter two, we give an analysis of the incentive and constraint of executive by means of the theory of principal and agent. First, we explain the expected utility function (Von. Neumann-Morgenstem utility function, V-N-M utility function) and risk attitude. Second, we analyze the model based on symmetric information, or the model that the principal can observe the action of agent. In this case a Pareto-optimal (first-best optimum) risk-sharing contract is possible, with the moral hazard or incentive problem being solved by what is known as a forcing contract. Third, we analyze the model based on asymmetric information, or the model that the principal can imperfectly observe the action. If principal can imperfectly observe the action, in some hypotheses, a Pareto-optimal risk-sharing contract is possible. If principal cannot observe the action and the agent is risk neutral a Pareto-optimal risk-sharing contract is possible, or else a Pareto-optimal risk-sharing contract is impossible. Fourth, we analyze the value of information. Last, we identify sufficient conditions梩he monotone likelihood ratio condition and convexity of the distribution function condition梖or the first-order approach to be valid.In Chapter three, we analyze how to evaluate the executive performance by means of the theory of principal and agent. First, we analyze how to evaluate the executive's performance by several signals, Second, we identify necessary and sufficient conditions on the joint density function of the signals under which linear aggregation, a simple and commonly employed way to construct performance evaluation measure, is optimal. Focusing on performance measures that arelinear aggregates enables us to determine the relative weights on the individual signals in the optimal linear aggregate, since these weights are invariant for all realizations of the signals. We interpret these weights in terms of statistical characteristics (sensitivity and precision) of the joint distribution of the signals. Third, we give an empirical analysis of cash compensation and the value of the executive's holdings of stock. Last, we analyze how much stock by the executive held that give maximum incentives to executive.Some innovation in the thesis is as follows:First, when we analyze the model based on symmetric information, we give a proof that the slope of the tangency of the point of intersection between the principal's indifference curves and his income certainty line is equal to the slope of the tangency of the point of intersection between the agent's indifference curves and his income certainty line.Second, when we analyze the model based on imperfectly observed actions, if random variable has zero mean and probability on some close interval and zero elsewhere, some literature on principal-agent theory have wrong proof of the conclusion, and we give a proof of the conclusion.Third, when we analyze the model based on asymmetric infor...