IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v332y2026i3p981-991.html

A general method for the existence of an optimal deterministic contract in moral hazard problems

Author

Listed:
  • Ke, Rongzhu
  • Xu, Xinyi

Abstract

This paper investigates the existence of optimal deterministic contracts under discontinuous probability measures. Such discontinuities arise when the support of signal or output distributions depends on the agent’s action, or when probability distributions feature mass points—scenarios commonly encountered in insurance models, labor supply problems with random truncation, and Pareto-distributed outcomes. We develop a novel approach to address the challenges posed by discontinuities in probability measures. Our results substantially generalize existing findings by establishing contract existence under weaker assumptions than those in the prior literature. Specifically, we relax the uniform continuity requirement on probability measures and accommodate environments where weak* convergence fails to hold. These findings provide a rigorous justification for the existence of optimal contracts in the operations research literature, particularly in compensation design and supply chain contracting.

Suggested Citation

  • Ke, Rongzhu & Xu, Xinyi, 2026. "A general method for the existence of an optimal deterministic contract in moral hazard problems," European Journal of Operational Research, Elsevier, vol. 332(3), pages 981-991.
    • Handle: RePEc:eee:ejores:v:332:y:2026:i:3:p:981-991
    DOI: 10.1016/j.ejor.2025.12.039
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221725010069
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2025.12.039?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:332:y:2026:i:3:p:981-991. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.