Designing multi-target salesforce incentive contract

Author

Wenxin HUANG

Date of Award

9-7-2015

Degree Type

Thesis

Degree Name

Master of Philosophy (MPHIL)

Department

Computing and Decision Sciences

First Advisor

Prof. LIANG, Liping

Second Advisor

Prof. LIU, Liming

Abstract

Multi-target incentive contracts are widely observed in practice to stimulate salesforce effort. However, little is known about their effectiveness and the issues involved in designing them. In this thesis, we investigate the incentive contracting problem between a manufacturer and an agent when the realized sales of a product are affected by both the agent's selling effort and the type of the agent. The agent's type is uncertain to the manufacturer, whereas the agent can observe the actual type when exerting her selling effort. Again, this is unobservable by the manufacturer. For contract design problem, we develop a principal-agent model with both moral hazard and adverse selection. We examine the manufacturer's optimal contract parameter decisions employing a single multi-target contract for the agent who can be of different types. Because menu contracts are commonly studied in literature for the adverse selection problem, we also study a menu of single-target contracts; and examine the manufacturer's optimal contract parameter decisions. We then compare the performance between the two types of contract. We arrive at a number of managerial insights regarding the design and the performance of multi-target contract and menu contract.

Keywords

Principal-agent model, moral hazard, adverse selection, multi-target contract, menu contract

Copyright

The copyright of this thesis is owned by its author. Any reproduction, adaptation, distribution or dissemination of this thesis without express authorization is strictly prohibited.

Recommended Citation

Huang, W. (2015). Designing multi-target salesforce incentive contract (Master's thesis, Lingnan University, Hong Kong). Retrieved from http://commons.ln.edu.hk/cds_etd/14/