The Study Of Behavioral Incentive Contract Theory And Application In The Inspective Of Fairness Preference

Information economics and behavioral economics relax basic assumptions of thetraditional economic model, which underlies that any economic analysis paradigmcannot make perfect and realistic assumptions of the economic entities. If theseimperfect basic assumptions are applied to all economic entities, it will inevitably leadto some limitations and "Paradox", for example, the phenomenon and data of Gameexperiment are not the same as those of the traditional economic model because thetraditional economic model assumes all economic entities are selfish. With thedevelopment of neural science, controlled experiment technology and game theory,more and more game experiments prove that non-selfish society preference, such asaltruism, equity preference, reciprocal preferences, are general characteristics of theeconomic entities, too. And these experimental data and its understanding make itnecessary to consider the non-selfish characteristics of the economic entities intheoretical studies, thus the evolution of the basic assumptions of economic theoryconstitutes a starting point for the basic logic of this paper. Facing anomalies andconfusion in incentive contracts, based on deregulating the selfish assumption, thepaper tries to change social preferences model with equity preference and reciprocalpreferences incorporated into the utility of the economic entities, thus integratingpsychological characteristics of fair and reciprocity into the analytical framework ofprincipal-agent and social dilemmas and constitutes incentive behavioral analysisframework which is more consistent with reality and characteristics of the economicentities.The paper constructs incentive behavioral analysis framework in the perspectiveof social preference based on low sensitivity of performance-pay, team free ride, andsocial dilemma: the paper study on how social preference can model utility functionand how social utility function can be integrated into agent utility function ofprincipal-agent and participant utility function of social dilemmas in line of someresearch results from social preference theory, behavioral game theory, behavioraleconomics and principal-agent theory and the method of criterion analysis andnumeral modeling. Based on the effective mechanism of them on utility function, Thepaper analyzes the structure and efficiency of linear incentive contract of morelhazard and team incentive contract by mathematical methods and standardizedanalysis. From these explorations, the paper achieves the following results in theprocess of building a behavior incentive contract theory: (1) On the basis of extending "self-concern" assumption to "non-selfish"assumption in the incentive contract theory, this paper defines independently theincentive contract analytical framework and its content: (â…°) behavior incentive contracttheory uses game experiment, survey evidence of questionnaires scene and intuitiveknowledge of psychology to summarize the selfish standard assumptions; (â…±) useslaws of psychology to weak subset of behavioral economics of self-rule hypothesis,which is also expansion of the standard incentive contract theory and acts as themain content of behavioral contract theory; (â…²)uses experimental economists' socialutility function to obtain a more realistic description of human psychologicalmotivation; (â…³) analyzes incentive contract structure and efficiency by integratingsocial utility function into analysis framework of utility maximization and expandsthe principal-agent incentive model analysis framework with social preferenceincorporated under the definition of behavioral incentive contract theory.(2) From the value function and the weight function of the prospect theory andthe integration of utility function in principal-agent model, the paper does research onthe social preference factors, especially participants' equity preference factors. Thepaper builds utility function which can reflect inequity averse factors and getcharacteristics of parameters of the fair preference model. The utility function showsthat the "profits" and "loss" are different in sensitivity, thus resulting the identicalpsychological characteristics of the economic entities. Capturing characteristics ofmodel parameters of the social preference model provides a theoretical basis forresearch on the concrete structural design of incentive contract and efficiency.(3) The paper does an industrial and regional empirical study on relationshipamong china's performance-pay sensitivities. The results of the test are: theperformance-pay correlation is less than 6% in competitive industries, monopolizedindustries, underdeveloped central regions and developed eastern regions, that is tosay, low performance-pay sensitivity in china is also a inexplicable puzzle in classicprincipal-agent model. However, after integrating psychological characteristics ofagent into performance-pay incentive contract, the paper makes a reasonableexplanation about low performance-pay sensitivity: considering agent's equitypreference psychological characteristics, the relationship between the level of effortsand sharing coefficient is nonlinear rather than linear as traditional model predicted.The nonlinear relationship between the level of efforts and sharing coefficientexplains basically the paradox in performance-pay contract: the low performance-pay sensitivity problem, that is, under the condition of inequity averse, when sharingcoefficient exceeds a certain critical value, giving less monetary compensation doesnot mean that the level of effort will be reduced, for example, if 1＞β＞1/2,reduction in the share of currencies will lead to increase in the level of efforte^**＞(β/Ï„_e)=e^*; and if 0＜β＜1/2, rising share of currencies will lead to decline inthe level of effort e^**＜(β/Ï„_e)=e^*.(4) The paper integrates social preference into team incentive contract andproves as follows: (a) if the competition among members of the team is appropriate,the effort level of social preference team members will be higher than that of selfishteam members. Hence, fair distribution can be used as an incentive for team memberin addition to material incentives in teamwork; (b) if team members who are inequityaverse are introduced, it will be easy to design team incentive mechanisms withinbalanced budget, thus solve the Hailstorm's budget balance problem and theincompatible Pareto efficiency theorem. It shows that lazy opportunists may beremoved when team members with equity preference or reciprocal preference areintroduced into the team; (c) integrating equity preference into selfish horizontalsupervised model would increase the penalty probability towards uncooperative teammembers and raise the cooperation level in the team. This is consistent with gameexperimental results.(5) From the perspective of social preference, this paper gives the behavioraldefinition of social dilemmas: social dilemmas is a behavioral case which involves agroup consisting individuals and common value items, among which each individualeffort to maximize his material rewards will result: each individual will even worsenthan at least one viable alternative results (measured by their material wealth).Moreover, under the behavioral definition of social dilemmas, using altruism modeland inequity adverse model, the paper analyzes social preference's inner impact onparticipants' utility in social dilemmas problem and builds analysis idea of socialdilemmas problem. Furthermore, the paper put this analytical idea into investmentgame plight, thus get another equilibrium differing from Nash Equilibrium——theonly sub-equilibrium in Rubinstein' s investment game:z_i^*=((1+α_j)(1+2α_i)-δ(1+α_i))/((1+2α_i)(1+2α_j)-δ²), z_j^*=1-z_i^*; Accept_j.