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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What Drives Sell-Side Analyst Compensation at High-Status Investment Banks?
TL;DR: In this article, the authors investigate factors associated with analysts' annual compensation and find that compensation is positively related to "All-Star" recognition, investment-banking contributions, the size of analysts' portfolios, and whether an analyst is identified as a top stock-picker by the Wall Street Journal.
Book ChapterDOI
Chapter 56 Rural Financial Markets in Developing Countries
TL;DR: In this article, a review examines portions of the vast literature on rural financial markets and household behavior in the face of risk and uncertainty and limited commitment, examining household strategies and bilateral contracting.
Journal ArticleDOI
Explicit Relative Performance Evaluation in Performance-Vested Equity Grants
TL;DR: In this article, the authors examine factors influencing explicit relative performance evaluation (RPE) conditions in performance-vested equity grants and find that many of these economic factors, including common risk reduction, are more closely related to specific relative performance conditions than to the firm-level decision to use RPE in some or all of their equity grants.
Posted Content
Competition and Productivity in Japanese Manufacturing Industries
TL;DR: In this article, the authors examined the determinants of productivity in Japanese manufacturing industries, looking particularly at the impact of product market competition on productivity, and found that competition, as measured by lower level of industrial price-cost margin, enhances productivity growth, controlling for a broad range of industrial and firm-specific characteristics.
Book ChapterDOI
Solutions to Principal-Agent Problems in Firms
TL;DR: The authors examines the principal-agent literature as it relates to management patterns of a firm and concludes that there is no unique solution to the principalagent problems in a firm; instead, a Coasean “contingency” theory can be constructe di nw hich different conditions inside the firm (characterized by production technology, severity of information asymmetry, and relative risk-preferences of principals and agents) call for different “solutions to th ep rincipal-agent problems.
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.
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.