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Stochastic Evolutionary Game Analysis Between Special Committees and CEO: Incentive and Supervision

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Abstract

Focusing on the problem of CEO incentive and supervision, this paper constructs a three-party stochastic evolutionary game model of the CEO, compensation committee and audit committee, and analyzes the boundary conditions of the stability based on stochastic replicator dynamics equations. In addition, it carries out the numerical approximations with Taylor expansion and \(It{\hat{o}}\)-type stochastic differential equation, and further analyzes the influence of key variables on the direction and convergence rate of game players' strategy choice. The results show that: (1) The probability that the CEO takes self-interested behavior falls faster and the probability that audit committee adopts supervisory strategy rises faster when the self-interested behavior of the CEO gets larger. (2) The audit committee has a fast convergence rate, and arrives earlier in the neighborhood of the stochastically stable state where the incentive coefficient adopted by the compensation committee is larger. (3) The increase in supervision intensity increases the convergence rate of the CEO, but decreases the convergence rate of the compensation committee. (4) According to a comparative analysis of noise intensity, the influence of random interference on the decision-making of the audit committee is more volatile.

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Acknowledgments

The authors deeply appreciate the valuable comments of three anonymous reviewers and the Associate Editor for improving this paper.

Funding

This work was supported in part by the National Natural Science Foundation of China under Grant 71371111, in part by the Humanities and Social Science Project of Chinese Ministry of Education under Grant 17YJC630154, in part by the Projects of the National Social Science Foundation of China under Grant 18CGL009, and in part by the Natural Science Foundation of Shandong Province of China under Grant ZR2019QG005.

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Authors and Affiliations

  1. College of Economics and Management, Shandong University of Science and Technology, Qingdao, 266590, China

    Xinmin Liu, Kangkang Lin & Hongkun Zhang

  2. School of Management, Qingdao Agricultural University, Qingdao, 266109, China

    Xinmin Liu

  3. School of Economics, Ocean University of China, Qingdao, 266100, China

    Lei Wang

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  1. Xinmin Liu
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  2. Kangkang Lin
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  4. Hongkun Zhang
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Correspondence to Kangkang Lin.

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Liu, X., Lin, K., Wang, L. et al. Stochastic Evolutionary Game Analysis Between Special Committees and CEO: Incentive and Supervision. Dyn Games Appl 11, 538–555 (2021). https://doi.org/10.1007/s13235-020-00372-x

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