Study on Incentive Mechanism of Military Representative

Sifa CHEN

Department of System Science and Engineering, School of Automation, Huazhong University of Science and Technology, Wuhan 430074, China

Abstract: With the development of economy and transformation of the new military revolution, the problem that the current military representative system that adapts the traditional planned economical system is lack of incentive and constraint to military representative is getting worse. In this paper, we make military and military representative as both principal and agent; analyze the problems of goal divergent and information asymmetry between the two sides. Put the observable variables into the product quality and production schedule. The former is output, may reflect the level of effort. The latter is decided by the external random variables, may be related to the quality of military products reflecting the level of effort. This method is closer with reality. Based on moral hazard model, we mainly research two observable variables, the quality of military product and the production schedule, to set up the model and analyze this model under two different situations that the level of effort could be observed and unobserved. Finally, we propose a new mechanism of incentive and constraint for military representative. The theoretical method mentioned by this paper for optimizing the principal-agent relationship of the ordinary production also has some inspiration.

Keywords: Military Representative System; Contract; Model of Moral Hazard; Military Representative