A Positive Study On Incentive Mechanism Design For Firm

Now, one most important feature of the property right within firm is the separation between ownership and manager-ship, and following this separation, we get the trust-proxy relationship between the owner of firm and the manager of firm. Due to the limitation of the roles they play within the firm, there will be unavoidable conflicts of interest for the different goal of each side. When the conflicts happened, the proxy-man will cause the proxy-problem by damaging the trustee' property with the pursuit of his own interest. And the design of firm inspirit mechanism is aiming at to solve this problem, and to urge the manager to pay more attention and effort on the long-term version of firm for getting win-win between the firm value and personal goal, by re-judging the course of the manager's personal property.The theory of trust-proxy is the basic idea to design the inspirit mechanism for firm. Generally, the trust-proxy theory weaves with organizational behavior, game theory and information economics. It's a theory founded based on the continue research on the proxy problem existed between the firm manager and the firm owner. Organizational behavior studies all members' behavior systematically in organizational environment, regarding behavior formed by interaction of individual, group, the whole organizations and its external environment as study object. Organizational behavior involves two basic problems: one is the effect way of organization to organizational members; the second is that organizational behavior studies behavior ways of every member in organization and the effect of performance to whole organization, coordination ways of organization to member activity decide whether organization can achieve its target.Game is the process that under certain circumstances and rules, some individual groups or other organizations, at the same time or one after another, one time or many times, choose and carry out the permitted behavior and tactics and get corresponding results from it.First of all, before we get the design of firm inspire mechanism, we should consider the limitation mechanism of such an incentive to the manager. And this topic includes three features: one is the salary inspire mechanism, one is the none-money pursuit, and one is the limitation mechanism of the competition market of the manager.Generally, the purpose of the design of the firm incentive is to urge the agent to implement the maximum ROI (return of investment) after signature, under the context of asymmetry of information, based on the incentive contract. Basically, you can divide it into two parts, the design of contract and the design of share stock.Based on the four general suppositions, from the perspective of the contract, we can design a classic incentive contract as this:Analyzing the relationship between the output sharing coefficient β and the absolute risk averting variable ρ, exogenous stochastic variable variance σ2, endeavor cost coefficient d, manager's leisure hobby b, we can conclude:1) Optimum incentive contract must obtain balance between incentive and insurance. To givenβ, the biggerρor σ2 is, the higher risk cost is. So the optimum risk sharing expects the smaller β2) The bigger manager's endeavor cost coefficient is, the smaller risk needed to undertake is. And we can see that the bigger d is, if expecting to incentive manager to choose the same endeavor level, then the bigger β is requested for. Therefore some owners would rather select manager's lower endeavor level (low cost), than undertake the bigger risk cost 3) Owners usually stimulate managers who favor leisure by surplus sharing mechanism, and the more manager favors leisure, the bigger sharing coefficient is which owner uses to incentive him. In effect, managers can merely share a part of extra output in contract design; that is to say, owners only agree that after managers finish the normal achievement, they can be qualified to share the extra. Owners hope that managers may work with more effort after finish...