Contract example Sample Clauses

Contract example. ‌ Using the same model parameters and functions from Section 5.1, the optimal contract procedure is found through the contract procedure presented before. The restrictions used on this example were: !(ɸc)={UA , bP } ki = kmax Pi = Pmax 4in i = 4in min no yes VIII k <k yes no 4in9<4in max no yes VI Pi>Pmin no UA ≥ CD yes ϕc = '$, -$, 4in 9 X End Contract i ɸc ={ki, Pi, 4in i } Pi= Pi-FP 4in i = 4in i+Ft Pi= Pmax ki= ki-Fk Pi= Pmax 4in i = 4in min ' – Infrastructure performance 4in – Mean time of inspection P – Penalty fee bP – Principal’s balance UA – Agent’s utility SP – Principal’s strategies SA – Agent’s strategies Minimum value for the agent’s utility over construction cost: u¯/cc = 1.1 Principal’s budget (i.e., minus the minimum principal’s balance): These example uses the results found in Section 5.3, therefore, the changes on the variables in each iteration will depend on the range of values considered on the sensitivity analysis. For example, the maximum Penalty Fee used on Section 5.3 was $ 100, thus, this will be the first value for the penalty fee on the contract. Table 6.2 shows the value of the contract parameter and restrictions on some iterations. Table 6.2: Contract procedure example Iteration P µin k UA/cc bP 1 100 1 90 0.89 -156 2 50 1 90 0.97 -310 3 20 1 90 1.02 -394 4 100 2 90 0.94 -200 : : : : : : 29 50 2 70 1.04 -225 30 20 2 70 1.10 -342 We can see on Table 6.2 that after 30 iterations, the optimal contract parameters are: φc = { P = $20 , µin = 2 years , k = 70 } These parameters form the contract with the highest expected value for the utilities of both entities, taking into account their decisions and their participation constrains.