A Study On The Continuous Principal-Agent With Its Application To The Supply Chain

The observability of information, the principal-agent relationship and the optimal contract are essential components of the Economics of information, which can be employed to describe the game-playing between two participators. However, there are unknown field covering the tansaction of commodities in real economy, which based on the supply chain. This paper is supposed to provide original study on the Continuous Principal-Agent on which supply chain runs. Furthermore, the agriculrtue products are described as physical and information flow, as a result, this paper gives suggestions about optimizing circulation of commodities.This paper consists of 4 chapters. Chapter I introduces the background and literature review. Beginning with recent development of Chinese agriculture, this paper brings forward different arguments from mainstream theory. Grounded on the reviews of theories about asymmetric information and agriculture products circulation, this paper provides a new possibility to resolve problems in our country, meanwhile, this paper sets out three directions: the information attribution of commodity, the participator of transaction and the supply chain.Chapter II gives an overall summary of Principal-Agent theory, and then presents its basic concepts, formula and conclusions briefly. Chapter III makes emphasis on the innovation of analysis method. Different from traditional theory containing only two participators, this paper gives rise to Continuous Principal-Agent for the first time, which constructs a new model named Principal-Agent Chain to describes supply chain. A principal-agent chain is divided into 4 types; they are symmetric information, hemi-symmetric information, hemi-asymmetric information and complete asymmetric information. Furthermore, this paper puts up with several ways to different types above, which formed a theorical solution to asymmetric information in supply chain.Chapter IV tries to describes supply chain as Principal-Agent Chain Model. At the first stage, the supply chain is interpreted as sequential traditional Principal-Agent knobs involved two participators. At the second stage, the physical nonstandardization of comodity and the intensity of asymmetric information are introduced into a furthermore analysis on pork, a commodity with natural great intensity of asymmetric information. The supply chain of pork is looked on as a principal-Agent chain with 5 participators and 4 transactions. By the way, some external variables, such as regulations of government and industrialization of agriculture, are also introduced to draw a conclusion of optimized contracts.Chapter V attempts to correct asymmetric information in supply chain. By means of Continuous Principal-Agent, adverse selection in supply chain is brought forth with the validity of sorts of solution. Consequently, it is not feasible that the argument from mainstream academics insists on establishing an exchange markets national wide, though it's the best project theoretically, on the contrary, it is more practical to create a second optimal solution under the circumstance of our country. In the end , this paper takes two measures to correct part of asymmetric information and realize second optimal markets. They are:(1) to set up a dual market making use of the Separate Equilibrium;(2) to reach a second optimal market by adjusting participators or using buffering pool.Chapter VI summarizes principal conclusions overall, at the same time, respects insufficiencies of study. The further research is also mentioned in the end.The original contribution of the study comprises five aspects. Academically, this paper, for the first time, gives a brand new concept of Continuous Principal-Agent, which help to extend traditional theory to a new field with more than two participators, meanwhile, extend traditional optimal contract to a set of optimal contracts. Practically, this paper finds an economic explanation to supply chain, as principal-agent chain, which causes an adverse selection in supply chain. Consequently this paper affirms a new application to improve supply chain, which enlarge policy-making. Especially, the paper introduces some solution aiming at pork circulation, which can be used in other commodities.