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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Journal ArticleDOI
Accounting earnings and top executive compensation
TL;DR: The authors investigated the role of accounting earnings in top executive compensation contracts and provided evidence in support of the hypothesis that earnings-based incentives help shield executives from market-wide factors in stock prices.
ReportDOI
Power in a Theory of the Firm
Raghuram G. Rajan,Luigi Zingales +1 more
TL;DR: In this article, the authors identify a potentially superior mechanism, the regulation of access to critical resources, in which the power agents get from access is more contingent on their making the right investment and ownership has adverse effects on the incentive to specialize.
Journal ArticleDOI
Salaries and Piece Rates
TL;DR: Lazear et al. as discussed by the authors examined the trade-offs between pecuniary and non-pecuniary compensation, and found that workers who receive compensation that is specified in advance and not directly contingent on performance tend to be of lower quality and more homogeneous than their piece-rate counterparts.
Journal ArticleDOI
Financial Accounting Information and Corporate Governance
Robert M. Bushman,Abbie J. Smith +1 more
TL;DR: The authors reviewed and proposed additional research concerning the role of publicly reported financial accounting information in the governance processes of corporations and suggested opportunities for expanding such research in the U.S. and abroad, including the consideration of interactions among control mechanisms.
Journal ArticleDOI
Incentives and Problem Uncertainty in Innovation Contests: An Empirical Analysis
TL;DR: It is shown that the effort-reducing effect of greater rivalry dominates for less uncertain problems, whereas the effect on the extreme value prevails for more uncertain problems and higher uncertainty reduces the negative effect of added competitors on incentives.
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.