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
Citations
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Performance Measure Congruity and Diversity in Multi-Task Principal/Agent Relations
Gerald A. Feltham,Jim Xie +1 more
TL;DR: In this article, the authors explored the implications of the nonobservability of the manager's actions and the fact that performance measures are influenced by unobservable, uncontrollable events.
Book ChapterDOI
Chapter 2 The theory of the firm
Bengt Holmstrom,Jean Tirole +1 more
TL;DR: The theory of the firm has long posed a problem for economists as discussed by the authors, and the main hypothesis is that contractual designs, both implicit and explicit, are created to minimize transaction costs between specialized factors of production.
Journal ArticleDOI
Political budget cycles: Do they differ across countries and why?
TL;DR: In this article, the authors examined the relation between elections and fiscal policy and found evidence of political budget cycles: on average, government fiscal deficit increases by almost 1% of GDP in election years.
Journal ArticleDOI
Personal Selling and Sales Management: A Relationship Marketing Perspective
TL;DR: In this article, the authors examine how the practice of personal selling and sales management is changing as a result of the increased attention on long-term, buyer-seller relationships and identify some implications of these changes.
Journal ArticleDOI
Incentives in Principal-Agent Relationships
TL;DR: In this paper, the principal's optimal response to these frictions is explored, taking as given the characteristics of the agents with whom the principal interacts in a non-repeated setting.
References
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Posted Content
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.
Journal ArticleDOI
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.
Posted Content
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.
Journal ArticleDOI
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.