IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v46y2025i7p3976-3997.html

Dynamic Incentive Strategies for Principal‐Agent Coopetition: A Stochastic Approach to Managing Risks and Performance

Author

Listed:
  • Lin Meng
  • George Xianzhi Yuan
  • Huiqi Wang

Abstract

This study investigates principal‐agent coopetition (PAC) by developing a comprehensive stochastic dynamical framework that captures the intricate interactions and associated risks between principals and agents in uncertain environments. The research emphasizes the importance of dynamic incentive strategies, focusing on key factors such as equity structure, driving capital, risk aversion degree, and task complexity. By defining and analyzing the dual risks of cooperation and competition within the PAC process, we introduce a novel performance evaluation metric, coordination at risks (CaR), to assess the effectiveness of these strategies. Through extensive numerical simulations, our results highlight the critical need to balance these risks to optimize PAC performance. The study provides actionable insights and practical guidelines for designing dynamic incentive mechanisms that not only align the interests of principals and agents but also mitigate potential risks, fostering sustainable cooperation and enhanced organizational performance in principal‐agent relationships.

Suggested Citation

  • Lin Meng & George Xianzhi Yuan & Huiqi Wang, 2025. "Dynamic Incentive Strategies for Principal‐Agent Coopetition: A Stochastic Approach to Managing Risks and Performance," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(7), pages 3976-3997, October.
    • Handle: RePEc:wly:mgtdec:v:46:y:2025:i:7:p:3976-3997
    DOI: 10.1002/mde.4566
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/mde.4566
    Download Restriction: no
    File URL: https://libkey.io/10.1002/mde.4566?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
    ---><---

    References listed on IDEAS

    as
    1. Francisco J. A. Cysneiros & Víctor Leiva & Shuangzhe Liu & Carolina Marchant & Paulo Scalco, 2019. "A Cobb–Douglas type model with stochastic restrictions: formulation, local influence diagnostics and data analytics in economics," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(4), pages 1693-1719, July.
    2. Wang, Huiqi & Yuan, Wei & Yuan, George, 2022. "The mechanism for SMEs growth by applying stochastic dynamical approach," Finance Research Letters, Elsevier, vol. 48(C).
    3. Roland Bénabou & Jean Tirole, 2016. "Bonus Culture: Competitive Pay, Screening, and Multitasking," Journal of Political Economy, University of Chicago Press, vol. 124(2), pages 305-370.
    4. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(6), pages 1999-2043, December.
    5. Huy Viet Hoang, 2024. "Environmental, social, and governance disclosure in response to climate policy uncertainty: Evidence from US firms," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(2), pages 4293-4333, February.
    6. Salvatore Cannella & Carmela Di Mauro & Roberto Dominguez & Alessandro Ancarani & Florian Schupp, 2019. "An exploratory study of risk aversion in supply chain dynamics via human experiment and agent-based simulation," International Journal of Production Research, Taylor & Francis Journals, vol. 57(4), pages 985-999, February.
    7. Borch, Christian, 2022. "Machine learning, knowledge risk, and principal-agent problems in automated trading," Technology in Society, Elsevier, vol. 68(C).
    8. Jakša Cvitanić & Dylan Possamaï & Nizar Touzi, 2018. "Dynamic programming approach to principal–agent problems," Finance and Stochastics, Springer, vol. 22(1), pages 1-37, January.
    9. Erica L. Plambeck & Stefanos A. Zenios, 2000. "Performance-Based Incentives in a Dynamic Principal-Agent Model," Manufacturing & Service Operations Management, INFORMS, vol. 2(3), pages 240-263, April.
    10. Core, John & Guay, Wayne, 1999. "The use of equity grants to manage optimal equity incentive levels," Journal of Accounting and Economics, Elsevier, vol. 28(2), pages 151-184, December.
    11. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    12. Williams, Noah, 2015. "A solvable continuous time dynamic principal–agent model," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 989-1015.
    13. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2018. "Time varying risk aversion," Journal of Financial Economics, Elsevier, vol. 128(3), pages 403-421.
    14. Yahel Giat & Steve T. Hackman & Ajay Subramanian, 2010. "Investment under Uncertainty, Heterogeneous Beliefs, and Agency Conflicts," The Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1360-1404, April.
    15. Demougin, Dominique & Helm, Carsten, 2023. "Overwhelmed by routine tasks: A multitasking principal agent perspective," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 654-669.
    16. Lizarazo, Sandra Valentina, 2013. "Default risk and risk averse international investors," Journal of International Economics, Elsevier, vol. 89(2), pages 317-330.
    17. Bruno, Sergio & Ahmed, Shabbir & Shapiro, Alexander & Street, Alexandre, 2016. "Risk neutral and risk averse approaches to multistage renewable investment planning under uncertainty," European Journal of Operational Research, Elsevier, vol. 250(3), pages 979-989.
    18. Thomas Crispeels & Jurgen Willems & Ilse Scheerlinck, 2018. "Public–private collaborations in drug development: boosting innovation or alleviating risk?," Public Management Review, Taylor & Francis Journals, vol. 20(2), pages 273-292, February.
    19. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    20. Rafael Repullo & Javier Suarez, 2004. "Venture Capital Finance: A Security Design Approach," Review of Finance, European Finance Association, vol. 8(1), pages 75-108.
    21. Qiang Kang & Qiao Liu, 2010. "Information-Based Stock Trading, Executive Incentives, and the Principal-Agent Problem," Management Science, INFORMS, vol. 56(4), pages 682-698, April.
    22. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-139, May.
    23. Saygin Cevik & Yasemin Erduman, 2020. "Measuring Monetary Policy Uncertainty and Its Effects on the Economy: The Case of Turkey," Eastern European Economics, Taylor & Francis Journals, vol. 58(5), pages 436-454, September.
    24. Saygin Cevik & Yasemin Erduman, 2020. "Measuring Monetary Policy Uncertainty and Its Effects on the Economy: The Case of Turkey," Eastern European Economics, Taylor & Francis Journals, vol. 58(5), pages 436-454, September.
    25. Pepper, Alexander & Gore, Julie, 2015. "Behavioral agency theory: new foundations for theorizing about executive compensation," LSE Research Online Documents on Economics 47569, London School of Economics and Political Science, LSE Library.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dou, Zheng & Lai, Chong, 2025. "Risk-incentive trade-off in moral hazard with risk management: Theoretical analysis and empirical verification," Economic Modelling, Elsevier, vol. 148(C).
    2. Qi Luo & Romesh Saigal, 2020. "Dynamic Multiagent Incentive Contracts: Existence, Uniqueness, and Implementation," Mathematics, MDPI, vol. 9(1), pages 1-17, December.
    3. Alex Edmans & Xavier Gabaix, 2016. "Executive Compensation: A Modern Primer," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1232-1287, December.
    4. Bushman, Robert M. & Smith, Abbie J., 2001. "Financial accounting information and corporate governance," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 237-333, December.
    5. Bengt Holmström, 2017. "Pay for Performance and Beyond," American Economic Review, American Economic Association, vol. 107(7), pages 1753-1777, July.
    6. Ryan T. Ball & Jonathan Bonham & Thomas Hemmer, 2020. "Does it pay to ‘Be Like Mike’? Aspiratonal peer firms and relative performance evaluation," Review of Accounting Studies, Springer, vol. 25(4), pages 1507-1541, December.
    7. René Carmona, 2022. "The influence of economic research on financial mathematics: Evidence from the last 25 years," Finance and Stochastics, Springer, vol. 26(1), pages 85-101, January.
    8. Zhang, Yuqian & Yang, Zhaojun, 2024. "Dynamic incentive contracts for ESG investing," Journal of Corporate Finance, Elsevier, vol. 87(C).
    9. Albuquerque, Ana, 2009. "Peer firms in relative performance evaluation," Journal of Accounting and Economics, Elsevier, vol. 48(1), pages 69-89, October.
    10. Dragan Ilić & Sonja Pisarov & Peter S. Schmidt, 2019. "Preaching water but drinking wine? Relative performance evaluation in international banking," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 155(1), pages 1-25, December.
    11. Rene Carmona, 2020. "Applications of Mean Field Games in Financial Engineering and Economic Theory," Papers 2012.05237, arXiv.org.
    12. Paul Duetting & Michal Feldman & Inbal Talgam-Cohen, 2024. "Algorithmic Contract Theory: A Survey," Papers 2412.16384, arXiv.org.
    13. Kissan Joseph & Alex Thevaranjan, 1998. "Monitoring and Incentives in Sales Organizations: An Agency-Theoretic Perspective," Marketing Science, INFORMS, vol. 17(2), pages 107-123.
    14. Albuquerque, Ana & Carter, Mary Ellen & Guo, Zhe (Michael) & Lynch, Luann J., 2025. "Complexity of CEO compensation packages," Journal of Accounting and Economics, Elsevier, vol. 79(1).
    15. Dylan Possamai & Nizar Touzi, 2020. "Is there a Golden Parachute in Sannikov's principal-agent problem?," Papers 2007.05529, arXiv.org, revised Oct 2022.
    16. Qinqin Gong & Ling Gai & Yanjun Jiang & Yang Lv & Ruiqi Yang, 2025. "Approximating combinatorial contracts with a cardinality constraint," Journal of Combinatorial Optimization, Springer, vol. 49(5), pages 1-16, July.
    17. Richard Meade, 2015. "Incentives, Efficiency and Quality in Regulated Monopolies under Customer Ownership," Working Papers 2015-05, Auckland University of Technology, Department of Economics.
    18. Camilo Hernández & Dylan Possamaï, 2024. "Time‐inconsistent contract theory," Mathematical Finance, Wiley Blackwell, vol. 34(3), pages 1022-1085, July.
    19. Heng-fu Zou, 2025. "Dynamic Multi-Agent Contracting with Relative Performance Evaluation and Competition," CEMA Working Papers 797, China Economics and Management Academy, Central University of Finance and Economics.
    20. Yoon K. Choi, 2020. "Does executive compensation reflect corporate productivity?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(7-8), pages 1012-1033, July.

    More about this item

    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:wly:mgtdec:v:46:y:2025:i:7:p:3976-3997. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    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.