Optimal Incentive Contracts With Bonus Caps
研究了风险中性的双方在奖金有上限时的最优合同设计，发现当信号满足单调似然比变换性质时，最优合同形式简单，并推导了信号提升合同效率的条件。
ABSTRACT This article investigates contracts between two risk‐neutral parties with bounded bonus payments. If the available signal about the agent's behavior satisfies a novel condition, the monotone likelihood ratio transformation property, the optimal contract takes a simple form irrespective of whether the first‐order approach (FOA) is valid or not. The contract rewards the agent the maximum bonus if the signal's likelihood ratio exceeds a threshold, which in contrast to the FOA contract is not necessarily zero. We next derive a condition for a signal to enhance the efficiency of a contract. Applications in relational contracting and law enforcement illustrate our findings.