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
A comparison of Milestone-based and buyout options contracts for coordinating R&D partnerships
TL;DR: It is found that milestone-based options contracts always attain the first-best outcome for the client when the provider has some bargaining power in renegotiation and their applicability to different R&D partnerships is identified.
Posted Content
Does Team Telecommuting Affect Productivity? An Experiment
TL;DR: In this paper, a controlled experiment was conducted to test whether telecommuters are more likely to free-ride when in teams and whether or not the locational composition of the team influences this outcome.
Journal ArticleDOI
Value creation and value capture under moral hazard: Exploring the micro-foundations of buyer– supplier relationships
Tomasz Obloj,Peter Zemsky +1 more
TL;DR: In this article, the authors combine the formalism of a principal-agent framework with a value-based analysis in order to investigate the micro-foundations of business partner selection and the division of value in contracting relationships.
Journal ArticleDOI
A comparative analysis of merchant and broker intermediation
TL;DR: In this paper, a comparative analysis of broker and merchant intermediation contracts is presented, showing that the broker intermediary form is best suited to conditions in which demand has large variance, and is independent of intermediary effort.
Proceedings ArticleDOI
But who will monitor the monitor
TL;DR: This work studies mediated contracts and finds that the monitor's deviations are effectively irrelevant, so nobody needs to monitor the monitor, and characterize exactly when such contracts can provide the right incentives for everyone.
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.