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An International Meeting of American Accounting
Association
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An Optimal Design of Fuzzy Compensation Contract Research |
Tzy - Yih Hsiao
Feng Chia University
Yu - Cheng Lin
National Chung Hsing University
Fang - Chi Lin
Feng Chia University
Abstract: The relationship between principal and agent is controversial, filled with uncertainty and subjectivity. The traditional compensation contract is analyzed by probability density function to discuss what optimal actions agents select for their own maximum utility, followed by that of principals. But traditional linear programming can not completely describe problems that arise. For this reason, we consider fuzziness of the behavior provided by the agent when facing the principal. It has found that if fuzziness has been disregarded beyond all reason, then the expected value of compensation is increased and expected cost overstated. Therefore the real actions of the agent will be gauged inaccurately and the employment contract setting flawed. Furthermore, the profit of the firm will be increased, it means expected utility of the principal will be increased. Therefore, cost overestimation will not lead to an optimal policy for an entity.