Monotone second-best optimal contracts

Article Abstract:

The two stage nonlinear programming method for the principal-agent problem suggested by S.J. Grossman and O.D. Hart in 1983 is analyzed. The goal of the principal is to find an optimal payment schedule to an agent that relies only on observable outcomes when outcomes are affected by unobservable moves of the agent. These 'second-best' optimal contracts are found to be monotonically related to observable outputs under fairly mild situations. The monotone likelihood ratio condition on the probabilities of outcomes is sufficient for monotonicity of second-best optimal contracts in a three-state model.

Cost benefit analysis, Incentives (Business), Payment, Agency (Law)

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On the optimal spacing of currency denominations

Article Abstract:

The optimal spacing for currency denominations is proven to be two even if overpayment and the return of exchange are taken into consideration. S. Sumner's proof that the optimal spacing is three, is proven wrong by J.S. Cramer's method which only takes into account actual world currency and assumes that the public's payment behavior is efficient. However, the spacing factor of two is not practical because denominations should be compatible with the decimal system and having a large number of denominations is very inconvenient.

Research, Money, Monetary policy

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Optimal allocation and backup of computer resources under asymmetric information and incentive incompatibility

Article Abstract:

A model for the optimal allocation and backup of computing resources in the presence of asymmetric information and incentive incompatibility is proposed. A game-theoretic model is developed and translated into a linear programming model to determine optimal computer resource allocation. A greedy-type algorithm and an averaged version of the linear programming model are developed to obtain upper and lower bounds. The greedy-type algorithm can provide exact solutions even when sufficient conditions are not met.

Resource allocation, Capacity management (Computers), Capacity management (Information technology)

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