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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Executive Equity Compensation and Incentives: A Survey
TL;DR: In this article, the authors focus on the more narrow, but crucial, topic of stock-based compensation and incentives and highlight several fundamental questions that seem especially appropriate for future research.
Journal ArticleDOI
Renegotiation design with unverifiable information
TL;DR: In this paper, the authors consider a buyer-seller relationship with observable but unverifiable investments and/or random utility parameters and show that optimal risk-sharing can typically be achieved provided the initial contract is able to monitor the ex post renegotiation process.
Journal ArticleDOI
The Economics of Franchise Contracts
TL;DR: In contrast to simple employment contracts, franchise agreements provide for sharing of profits (through royalties on revenue or output) and considerable freedom for independent decisions by local franchisees as discussed by the authors, while franchisors typically provide national advertising and training programs, monitor and inspect the franchisees' performance (with varying intensity across industries).
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Trading in strategic resources: Necessary conditions, transaction cost problems, and choice of exchange structure
TL;DR: In this article, the author's final draft is available from: http://dx.doi.org/10.1002/smj.4250150403, and the full version of this paper is available online.
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Corporate Conservatism and Relative Compensation
TL;DR: In this article, the authors show that managers who undertake the industry standard are consequently evaluated with a more accurate benchmark than those who innovate, and that very high and very low ability managers are more likely to undertake superior innovations than those of average ability.
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.
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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.
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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.