| Abstract: |
Principal-agent problems are typically solved by the first-order approach (FOA) that replaces the incentive-compatibility constraint in the original problem with its first-order condition, resulting in a relaxed problem. The most celebrated condition that validates FOA is the Mirrlees-Rogerson Condition, developed for a risk-averse agent. We show that it fails to generalize to a widely studied setting of risk-neutral players and limited liability. Instead of justifying FOA, we propose a less stringent notion that only requires FOA to be valid for quota-bonus contracts (FOAVQB). This proposal is rationalized by our finding that quota-bonus contracts are optimal for the relaxed problem. We identify exogenous sufficient conditions that justify FOAVQB, thus ensuring the optimality of quota-bonus contracts for the original problem. These sufficient conditions are flexible enough to accommodate common instances where the agent’s expected utility is non-unimodal in effort (besides those with a unimodal utility function), contrasting the literature that justifies FOA by finding conditions to guarantee unimodality.
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Biography:
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Dr. JIN Chen, is currently an assistant professor at the National University of Singapore, Department of Information Systems and Analytics. Prior to joining NUS, he was a post-doctoral research fellow at the Wharton School. He earned his PhD in Industrial Engineering and Management Science from Northwestern University and his bachelor's degree from Shanghai Jiao Tong University. His research interests lie in the intersection of information systems and operations. He has published papers in journals such as Management Science, Information Systems Research, MSOM, JMIS, and POMS, and also CS conferences such as the ACM Conference on Economics and Computation. His work has won multiple awards including the finalist of the 2024 MSOM Service Management SIG Best Published Paper Award, the Runner-up of the 2022 CIST Best Paper Award, and the winner of the 2022 INFORMS ENRE Young Researcher Prize. He is also a three-time recipient of the School of Computing Faculty Teaching Excellence Award at NUS.
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