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
More filters
Journal ArticleDOI
But Who Will Monitor the Monitor
TL;DR: In this article, the authors propose a contract that makes the monitor responsible for monitoring, and thereby provides incentives even when the monitor's observations are not only private, but costly, too.
Posted Content
Prizes and Incentives in Elimination Tournaments
TL;DR: The role of rewards for maintaining performance incentives in multistage, sequential games of survival is studied in this paper, where it is shown that extra weight must be placed on top ranking prizes to maintain performance incentives of survivors at all stages of the game.
Journal ArticleDOI
The Positive Effects of Biased Self-Perceptions in Firms ∗
Simon Gervais,Itay Goldstein +1 more
TL;DR: The authors show that the presence of an agent who overestimates his marginal productivity may make all agents better off, including the biased agent himself, even when compensation contracts are set endogenously to maximize firm value.
Posted ContentDOI
Gender, competition and the efficiency of policy interventions
TL;DR: The authors evaluate experimentally three alternative policy interventions to promote women in competitions: quota, preferential treatment, and repetition of the competition unless a critical number of female winners is reached. And they find that quota and preferential treatment encourage women to compete significantly more often than in a control treatment, while efficiency in selecting the best candidates as winners is not worse.
Journal ArticleDOI
Pay for Performance and Beyond
TL;DR: In this paper, the authors describe the path from pay for performance to the broader view of incentive systems, which is a major advance in the economics of incentives in recent years, and describe the way in which incentive systems have to take into account the full portfolio of activities that the agent can engage in, the array of instruments, many non-financial, that are available to influence individuals and consider the factors that motivate them in different settings.
References
More filters
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.