Mathematical Finance and Probability Seminars
Sharing Profits in the Sharing Economy
Gu Wang , Worcester Polytechnic Institute
Location: Hill 705
Date & time: Tuesday, 23 October 2018 at 11:50AM - 12:55PM
Abstract: A monopolist platform (the principal) shares profits with a population of affiliates (the agents), heterogeneous in skill, by offering them a common nonlinear contract contingent on individual output. The principal cannot discriminate across individual skill, but knows its distribution and aims at maximizing profits. This paper identifies the optimal contract, its implied profits, and agents' effort as the unique solution to an equation depending on skill distribution and agents' costs of effort. If skill is Pareto-distributed and agents' costs include linear and power components, closed-form solutions highlight two regimes: If linear costs are low, the principal's share of revenues is insensitive to the distribution of skills, and decreases as agents' costs increase. If linear costs are high, the principal's share is insensitive to the agents' costs, while it decreases as skill diversity increases.