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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Moral hazard and reputational concerns in teams: Implications for organizational choice
TL;DR: In this paper, the authors study how and to what extent market reputation controls moral hazard in the presence of joint production and characterize the nature of free-riding and the dependence of an agent's reputational concerns on his partner's characteristics as well as his own.
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Moral hazard and moral motivation: Corporate social responsibility as labor market screening
TL;DR: In this paper, the authors show that if a firm can attract workers who are strongly motivated by ethical concerns, moral hazard problems like shirking can be reduced, and they show that employers may use the firm's corporate social responsibility profile as a screening device to attract more productive workers.
Journal ArticleDOI
Causes of Subcontracting: Evidence from Panel Data on Construction Firms
TL;DR: In this article, the authors examine factors explaining subcontracting decisions in the construction industry and use panel data to evaluate the influence of all relevant variables, and design and use a new index of the closeness to small numbers situations to estimate the extent of holdup problems.
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Social capital and the cost of equity
TL;DR: In this paper, the authors find that a firm's cost of equity is inversely related to the level of social capital in the state where the firm is headquartered, and that the costs of equity decline when firms move their headquarters from a low-social-capital state to a state with higher social capital.
Journal ArticleDOI
Who disciplines bank managers
TL;DR: In this article, the authors exploit a unique data set of executive turnover in community banks to test the micro-mechanisms of discipline by examining the monitoring and influencing role of different stakeholders.
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.