The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory

Guangtao Xia; Wangyin Hu; Hao Wang

doi:doi:10.11648/j.edu.20190806.24

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The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory

Guangtao Xia, Wangyin Hu, Hao Wang

Published in Education Journal (Volume 8, Issue 6)

Received: 24 October 2019 Published: 3 December 2019

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Abstract

Over the past three decades, many universities in China provide students with the Second Major program, aiming at cultivating interdisciplinary talents and meeting the undergraduates’ increasing demands for a wide variety of knowledge. In general, the Admissions Committee often attaches importance to the applicants’ previous academic records rather than their willingness to study during the process of selection, which tends to result in the adverse selection problem. Besides, as the Second Major education system fails to incorporate an appropriate incentive compatible mechanism, many enrolled students with low level of learning initiative would be prone to moral hazard problems, such as truancy, chronic absence and poor performance in class. In order to solve the above two kinds of problems and improve the quality of education, we first propose a novel pricing strategy bundling tuition fees and course quantities based on the principal-agent theory, which is designed to mitigate the adverse selection problem by identifying applicants’ private information (the level of their willingness to study) and enable the Admissions Committee to select those applicants with both strong academic ability and high learning willingness. Then we set up the incentive models for the full and limited liability scholarship systems respectively to address the moral hazard problems, and find that the infeasible full liability scholarship system can simultaneously optimize the utility of all participants, while the feasible limited liability scholarship system would only bring about the sub-optimal results.

Published in	Education Journal (Volume 8, Issue 6)
DOI	10.11648/j.edu.20190806.24
Page(s)	332-337
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2019. Published by Science Publishing Group

Keywords

Incentive Mechanism, Second Major Program, Principal-Agent Theory, Adverse Selection, Moral Hazard

References

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[9]	KAMALAN, A. (2018), “Supervisory Incentives within Contracts: A Principal-Supervisor-Agent Approach”, Journal of Finance, 6 (2): 58-63.
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[11]	Bendickson, J., Muldoon, J., Liguori, E. W., & Davis, P. E. (2016), “Agency Theory: Background and Epistemology”, Journal of Management History, 22 (4): 437-449.
[12]	Rubin, J., & Sheremeta, R. (2015), “Principal–agent Settings with Random Shocks”, Management Science, 62 (4): 985-999.
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APA Style

Guangtao Xia, Wangyin Hu, Hao Wang. (2019). The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory. Education Journal, 8(6), 332-337. https://doi.org/10.11648/j.edu.20190806.24

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ACS Style

Guangtao Xia; Wangyin Hu; Hao Wang. The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory. Educ. J. 2019, 8(6), 332-337. doi: 10.11648/j.edu.20190806.24

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AMA Style

Guangtao Xia, Wangyin Hu, Hao Wang. The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory. Educ J. 2019;8(6):332-337. doi: 10.11648/j.edu.20190806.24

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@article{10.11648/j.edu.20190806.24,
  author = {Guangtao Xia and Wangyin Hu and Hao Wang},
  title = {The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory},
  journal = {Education Journal},
  volume = {8},
  number = {6},
  pages = {332-337},
  doi = {10.11648/j.edu.20190806.24},
  url = {https://doi.org/10.11648/j.edu.20190806.24},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.edu.20190806.24},
  abstract = {Over the past three decades, many universities in China provide students with the Second Major program, aiming at cultivating interdisciplinary talents and meeting the undergraduates’ increasing demands for a wide variety of knowledge. In general, the Admissions Committee often attaches importance to the applicants’ previous academic records rather than their willingness to study during the process of selection, which tends to result in the adverse selection problem. Besides, as the Second Major education system fails to incorporate an appropriate incentive compatible mechanism, many enrolled students with low level of learning initiative would be prone to moral hazard problems, such as truancy, chronic absence and poor performance in class. In order to solve the above two kinds of problems and improve the quality of education, we first propose a novel pricing strategy bundling tuition fees and course quantities based on the principal-agent theory, which is designed to mitigate the adverse selection problem by identifying applicants’ private information (the level of their willingness to study) and enable the Admissions Committee to select those applicants with both strong academic ability and high learning willingness. Then we set up the incentive models for the full and limited liability scholarship systems respectively to address the moral hazard problems, and find that the infeasible full liability scholarship system can simultaneously optimize the utility of all participants, while the feasible limited liability scholarship system would only bring about the sub-optimal results.},
 year = {2019}
}

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TY  - JOUR
T1  - The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory
AU  - Guangtao Xia
AU  - Wangyin Hu
AU  - Hao Wang
Y1  - 2019/12/03
PY  - 2019
N1  - https://doi.org/10.11648/j.edu.20190806.24
DO  - 10.11648/j.edu.20190806.24
T2  - Education Journal
JF  - Education Journal
JO  - Education Journal
SP  - 332
EP  - 337
PB  - Science Publishing Group
SN  - 2327-2619
UR  - https://doi.org/10.11648/j.edu.20190806.24
AB  - Over the past three decades, many universities in China provide students with the Second Major program, aiming at cultivating interdisciplinary talents and meeting the undergraduates’ increasing demands for a wide variety of knowledge. In general, the Admissions Committee often attaches importance to the applicants’ previous academic records rather than their willingness to study during the process of selection, which tends to result in the adverse selection problem. Besides, as the Second Major education system fails to incorporate an appropriate incentive compatible mechanism, many enrolled students with low level of learning initiative would be prone to moral hazard problems, such as truancy, chronic absence and poor performance in class. In order to solve the above two kinds of problems and improve the quality of education, we first propose a novel pricing strategy bundling tuition fees and course quantities based on the principal-agent theory, which is designed to mitigate the adverse selection problem by identifying applicants’ private information (the level of their willingness to study) and enable the Admissions Committee to select those applicants with both strong academic ability and high learning willingness. Then we set up the incentive models for the full and limited liability scholarship systems respectively to address the moral hazard problems, and find that the infeasible full liability scholarship system can simultaneously optimize the utility of all participants, while the feasible limited liability scholarship system would only bring about the sub-optimal results.
VL  - 8
IS  - 6
ER  -

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Author Information

Guangtao Xia

PBC School of Finance, Tsinghua University, Beijing, P. R. China
Wangyin Hu

School of Social Sciences, Tsinghua University, Beijing, P. R. China
Hao Wang

School of Economics and Management, Tsinghua University, Beijing, P. R. China

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Plain Text BibTeX RIS

APA Style

Guangtao Xia, Wangyin Hu, Hao Wang. (2019). The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory. Education Journal, 8(6), 332-337. https://doi.org/10.11648/j.edu.20190806.24

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ACS Style

Guangtao Xia; Wangyin Hu; Hao Wang. The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory. Educ. J. 2019, 8(6), 332-337. doi: 10.11648/j.edu.20190806.24

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AMA Style

Guangtao Xia, Wangyin Hu, Hao Wang. The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory. Educ J. 2019;8(6):332-337. doi: 10.11648/j.edu.20190806.24

Copy | Download

@article{10.11648/j.edu.20190806.24,
  author = {Guangtao Xia and Wangyin Hu and Hao Wang},
  title = {The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory},
  journal = {Education Journal},
  volume = {8},
  number = {6},
  pages = {332-337},
  doi = {10.11648/j.edu.20190806.24},
  url = {https://doi.org/10.11648/j.edu.20190806.24},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.edu.20190806.24},
  abstract = {Over the past three decades, many universities in China provide students with the Second Major program, aiming at cultivating interdisciplinary talents and meeting the undergraduates’ increasing demands for a wide variety of knowledge. In general, the Admissions Committee often attaches importance to the applicants’ previous academic records rather than their willingness to study during the process of selection, which tends to result in the adverse selection problem. Besides, as the Second Major education system fails to incorporate an appropriate incentive compatible mechanism, many enrolled students with low level of learning initiative would be prone to moral hazard problems, such as truancy, chronic absence and poor performance in class. In order to solve the above two kinds of problems and improve the quality of education, we first propose a novel pricing strategy bundling tuition fees and course quantities based on the principal-agent theory, which is designed to mitigate the adverse selection problem by identifying applicants’ private information (the level of their willingness to study) and enable the Admissions Committee to select those applicants with both strong academic ability and high learning willingness. Then we set up the incentive models for the full and limited liability scholarship systems respectively to address the moral hazard problems, and find that the infeasible full liability scholarship system can simultaneously optimize the utility of all participants, while the feasible limited liability scholarship system would only bring about the sub-optimal results.},
 year = {2019}
}

Copy | Download

TY  - JOUR
T1  - The Reform of Incentive Mechanism for Second Major Program: Based on the Principal-Agent Theory
AU  - Guangtao Xia
AU  - Wangyin Hu
AU  - Hao Wang
Y1  - 2019/12/03
PY  - 2019
N1  - https://doi.org/10.11648/j.edu.20190806.24
DO  - 10.11648/j.edu.20190806.24
T2  - Education Journal
JF  - Education Journal
JO  - Education Journal
SP  - 332
EP  - 337
PB  - Science Publishing Group
SN  - 2327-2619
UR  - https://doi.org/10.11648/j.edu.20190806.24
AB  - Over the past three decades, many universities in China provide students with the Second Major program, aiming at cultivating interdisciplinary talents and meeting the undergraduates’ increasing demands for a wide variety of knowledge. In general, the Admissions Committee often attaches importance to the applicants’ previous academic records rather than their willingness to study during the process of selection, which tends to result in the adverse selection problem. Besides, as the Second Major education system fails to incorporate an appropriate incentive compatible mechanism, many enrolled students with low level of learning initiative would be prone to moral hazard problems, such as truancy, chronic absence and poor performance in class. In order to solve the above two kinds of problems and improve the quality of education, we first propose a novel pricing strategy bundling tuition fees and course quantities based on the principal-agent theory, which is designed to mitigate the adverse selection problem by identifying applicants’ private information (the level of their willingness to study) and enable the Admissions Committee to select those applicants with both strong academic ability and high learning willingness. Then we set up the incentive models for the full and limited liability scholarship systems respectively to address the moral hazard problems, and find that the infeasible full liability scholarship system can simultaneously optimize the utility of all participants, while the feasible limited liability scholarship system would only bring about the sub-optimal results.
VL  - 8
IS  - 6
ER  -

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