Journal ArticleDOI
Moral Hazard in Teams
TLDR
In this article, the authors study moral hazard with many agents and focus on two features that are novel in a multiagent setting: free riding and competition, and show that competition among agents (due to relative evaluations) has merit solely as a device to extract information optimally.Abstract:
This article studies moral hazard with many agents. The focus is on two features that are novel in a multiagent setting: free riding and competition. The free-rider problem implies a new role for the principal: administering incentive schemes that do not balance the budget. This new role is essential for controlling incentives and suggests that firms in which ownership and labor are partly separated will have an advantage over partnerships in which output is distributed among agents. A new characterization of informative (hence valuable) monitoring is derived and applied to analyze the value of relative performance evaluation. It is shown that competition among agents (due to relative evaluations) has merit solely as a device to extract information optimally. Competition per se is worthless. The role of aggregate measures in relative performance evaluation is also explored, and the implications for investment rules are discussed.read more
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Taxation of a Venture Capitalist with a Portfolio of Firms
TL;DR: In this article, an optimal tax policy is derived that succeeds to move the private equilibrium towards a first best allocation, where managerial support and the number of portfolio firms are inefficiently low in private equilibrium.
Journal ArticleDOI
A signaling theory of grade inflation
William Chan,Li Hao,Wing Suen +2 more
TL;DR: In this article, the authors construct a signaling model where grades are inflated in equilibrium and show that grade inflation by one school makes it easier for another school to do likewise, thus providing a channel to make grade exaggeration contagious.
Journal ArticleDOI
Mandatory IFRS adoption in Europe and the contractual usefulness of accounting information in executive compensation
TL;DR: In this article, the authors examine how the mandatory adoption of International Financial Reporting Standards (IFRS) in continental Europe affects the contractual usefulness of accounting information in executive compensation, as reflected in pay-performance sensitivity (PPS) and relative performance evaluation (RPE).
Journal ArticleDOI
Resource Allocation and Organizational Form
Guido Friebel,Michael Raith +1 more
TL;DR: In this article, the authors developed a theory of scope and structure in which merging two managers allows the integrated manager's top management to allocate resources that are costly to trade; however, information about their use resides with division managers.
Journal ArticleDOI
Application of the controllability principle and managerial performance: The role of role perceptions
TL;DR: In this article, the authors analyzed the effect of role ambiguity and role conflict on managerial performance, and found that role perceptions completely mediate the impact of application of the controllability principle on manager performance.
References
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Production, information costs, and economic organization
Armen A. Alchian,Harold Demsetz +1 more
TL;DR: In this paper, the authors present a set of reprint articles for which IEEE does not hold copyright. Full text is not available on IEEE Xplore for these articles, but full text can be found on the Internet Archive.
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Moral Hazard and Observability
TL;DR: In this article, the role of imperfect information in a principal-agent relationship subject to moral hazard is considered, and a necessary and sufficient condition for imperfect information to improve on contracts based on the payoff alone is derived.
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The Economic Theory of Agency: The Principal's Problem.
TL;DR: The canonical agency problem can be posed as follows as discussed by the authors : the agent may choose an act, aCA, a feasible action space, and the random payoff from this act, w(a, 0), will depend on the random state of nature O(EQ the state space set), unknown to the agent when a is chosen.
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Reexamination of the perfectness concept for equilibrium points in extensive games
TL;DR: The concept of perfect equilibrium point has been introduced in order to exclude the possibility that disequilibrium behavior is prescribed on unreached subgames [Selten 1965 and 1973]. Unfortunately this definition of perfectness does not remove all difficulties which may arise with respect to unreached parts of the game.
Journal ArticleDOI
Good News and Bad News: Representation Theorems and Applications
TL;DR: In this article, a notion of "favorableness" of news is introduced, characterized, and applied to four simple models: the arrival of good news about a firm's prospects always causes its share price to rise, more favorable evidence about an agent's effort leads the principal to pay a larger bonus, buyers expect that any product information withheld by a salesman is unfavorable to his product, and bidders figure that low bids by their competitors signal a low value for the object being sold.