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The issue of repricing has provoked many controversies. Since Kahneman and Tversky(1979)proposed prospect theory to claim that people commonly exhibit prospect theory type utility function, our study incorporates executive's risk preference with prospect theory. The intention of this study is to try to provede a novel insight into explaining rationality of repricing. Our model provides a novel resetting policy called up repricing. Based on prospect theory, this model shows that resetting is necessary for executives not only in the domain of gains but in the domain of losses from an ex-ant point. Thus this study teveals the importance of up repricing. In respect of repricing, We find that executive's intensity of risk preference is a decisive factor in optimal incentive contract. In addition, there is a conflict of interest between employees and stockholder(principal) in our optimal repricing process. If strong worker union con conciliate the conflict of interest between employees and stockholder, it will ensure that all participants are better off. Therefore, the role of worker union should be valuable to repricing.
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