Top publication by Trond E. Olsen
The article "Optimal Incentive Contracts With Bonus Caps" has been published in RAND Journal of Economics.
RAND Journal of Economics is on level 4 in the ABS Academic Journal Guide.
Chi, Chang-Koo, and Trond E. Olsen: Optimal platform pricing with multi-sided users: A direct and indirect network approach, RAND Journal of Economics, 2025, 56(1), Online 05.02.2025.
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.