Research On Chinese Public Managers' Overconfidence And Compensation Contract Design

Coase once called the mainstream economics formed at the beginning of twentieth century as blackboard economics. As the principle and agent are all rational and they have commonness in both economic behaviors and psychological ideas, the mainstream economics didn't fully consider that the irrational behaviors done by the principal and agent and psychological factors can influence the model. As a result, much abnormal economic phenomena can not be explained reasonably.Theory of behavior contract springs up and offers ways to solve this problem. The author hopes that this paper can complement the theoretical series of principle and agent, and build a platform for the further study of behavior contract theory. Practically, this paper will supply some theoretical advices and beneficial ideas to lower the manager's behavioral risks of the public company, to improve their inner relationship between the principal and agent and design effective incentive mechanism in order to enhance the efficiency of motivation.With the principle and agent theory, incentive theory, behavioral economic theory for study foundation, with public company managers for research objects, using questionnaire, game and econometrics, this paper introduces the overconfidence psychological warp of public company managers into the incentive theory and design the overconfidence questionnaire of public company managers and analyze their behavioral risks. According to the results, this paper studies how to enhance the overconfident manager's reward-performance sensitivity and designs compensation contract mechanism to avoid behavioral risks finally.Main results of this paper are as follows:(1)This paper systemically and fully summarizes the development process of principle and agent theory and the research results about overconfidence, points out that the behavioral contract theory is the new direction of principle-agent theory.(2)This paper has designed questionnaire to measure the overconfidence of public company managers, which is made up of two parts including overconfidence about ability and overconfidence of risk control. Both total and sub questionnaire are carried on reliability and validity test. The results show that reliability is high and the structure validity, content validity and exterior connection validity are good.Based on these, this paper analyzes the overconfidence of public company managers in several aspects. It shows that overconfidence lever is remarkable different in sex and kind of enterprise, while not remarkable in area, age, education background and position title.(3) This paper systematically and completely sums up the measure method for overconfidence in the past and points out the bugs and shortage of traditional method. At the same time, considering the peculiarity of Chinese public company, this paper suggests the right way to test those managers' overconfidence.(4) The first used Mathematical Analysis shows that: the sensitivity of reward-performance of public company managers is higher that rational ones; the sensitivity of reward-performance of public company managers is opposite to risk. This paper uses relevant dates from 2002 to2007 to test these assumptions. At last the strategies of raising the lever of sensitivity of reward-performance are put forward.(5) This paper analyzes the behavioral risk of Chinese overconfident public company managers, and brings forward two-dimension model of "employment" and "decision-making" according to the main damage and importance. Model shows that the behavioral risk of "employment" dimension is not line of duty, while the behavioral risk of "decision-making" dimension is over-investment. This paper puts forward how to design reward contract so as to avoid behavioral risks: the effective way to avoid behavioral risk of "employment" dimension is to consider the overconfidence influence on reward contract. The influence mechanism of overconfidence to compensation designing are analyzed. The effective way to avoid behavioral risk of "decision-making" dimension is to use HU, it can either make the managers do their best or ensure the managers make rational decision.