Study Of Corporate Managerial Contract Design Based On Double Moral Hazard Prevension

As the build-up of modern enterprise system and the perfection of property right structure, the management of the enterprise is based on the employment of top managers. It is wide accepted that managers can take moral hazard actions like investing in high-risk projects, interpolating real profits, and goofing off during managerial process. On the other hand, corporate owners also have moral hazard tendencies, such like lowering the managerial compensation on purpose, transferring the decision risks, and laying off managers to eliminate competition. Thus, double moral hazard exists both among managers and owners.Through the analysis of the principal-agent relationship between the owners and managers, this paper establishes a series of double moral hazard prevention models, designs double moral hazard contracts and analyses the effectiveness of the prevention of double moral hazard behaviors.Firstly, this paper establishes a double moral hazard prevention contract based on dismissal compensation, analyses the prevention of principal's and agent's moral hazard behaviors to prove the validity of the contract, and testify the effectiveness by numerical examples. The thesis introduces the dismissal problem into traditional contract design. The optimization and static analysis of the double moral hazard prevention model shows that introduction of dismissal compensation can effectively lower principal's tendency to lay off the agent, while the agent tends to work harder to get higher payment. This implies that the principal's and agent's double moral hazard has been prevented:the principal cannot fire the agent on will, and the agent's laziness has been curbed.Secondly, this paper establishes double moral hazard prevention contract based on stock options, designs the optimal contract through numerical deduction and discusses the effectiveness and impact on agent's efforts. This thesis introduces stock options into double moral hazard contract design. The results of model optimization and static analysis reach the conclusion that fixed and variable compensation decreases, which implies that agent has to work hard in order to gain profit from stock options. So, the principal can motive the agent with a lower cost.Thirdly, this paper establishes double moral hazard contract based on agent's overconfidence bias, and analyzes the effectiveness of contract and the impact of psychological bias on contract design and agency costs as well. The results show that overconfident agents do not require high fixed payment, but want high variable compensation, which is because the overconfident agent is willing to work hard to improve corporate income, thus is more preferable to gain from the enterprise profits. The decrease of agency costs means that the principal can lower the motivation costs if he hires overconfident agent.Finally, this paper establishes a multi-task dynamic double moral hazard contract, and analyzes the impact of ratchet effect, reputation effect and dismissal tendency on each other and on contract design and agent's behaviors. The thesis introduces implicit incentive mechanism into multi-task contract design process. Results of the analysis supports that reputation effect has positive impact on agent and can lower the variable compensation, and the ratchet effect has negative effects on agent and increases variable compensation, while the dismissal tendency dilutes the influences from reputation and ratchet effects. Moreover, only under circumstance when ratchet effect overwhelms reputation effect, can the contract be effective in prevent double moral hazard.