Research On The Incentive Contract Based On Bargaining Games

In the modern,in order to alleviate the conflict between shareholders and executives, the enterprise usual design an incentive mechanism which the managers enjoy a part of corporate profits, shareholders and managers share the risk. The reasonable and effective incentive contract can fully mobilize the enthusiasm of senior executives and other managers, executives will make efforts to create business value. Current research on the incentive contract is usually based on the principal-agent model, and principal-agent model implicitly assumed that the agent market is perfectly competitive, the agent would obtain the reservation utility if the agent does not accept the contracts provided by the client.While this assumption simplified the complex issue, but it ignored the bargaining between principal and agent. Under this assumption, the principal can maximize their utility and the agent retained the reservation utility, this is different from the reality.To solve this problem, we assume that the client receive a fixed net profit, the agent obtain the surplus. In this way,the agent’s remuneration and corporate performance related closely,the agent do more effort, the bigger cake, the more you get. This paper analyzed the negotiation about the net profit of the principal by Rubinstein bargaining game.It assumed the principal first bid, the agent according to their psychological expectations can choose to accept the offer to principal or counter offer,then established and solved an indefinitely bargaining game between principal and agent. A nonlinear equalization contract is provided based on the sub-game perfect Nash equilibrium and the break point which represent the opportunistic pay of the agent, it also provides a more realistic situation for the design of incentive contract. Incentive contract based on the principal-agent model focuses on constraints and incentives through participation constraint, it showed that principal how to maximize the design contract in order to meet their own interests, and the contract based on bargaining model, the emphasis is to describe what kind of incentive contract is balanced.