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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Does Venture Capital Syndication Spur Employment Growth and Shareholder Value? Evidence from German IPO Data
TL;DR: In this paper, the authors empirically examined the syndication of equity by multiple venture capitalists in Germany and found that the syndicated investments do not differ significantly in stock-market performance, they do show significantly higher growth rates.
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Bertrand and Walras Equilibria under Moral Hazard
TL;DR: In this article, the authors consider a simple model of competition under moral hazard with constant return technologies, and show that Bertrand competition may result in positive equilibrium profit for purely idiosyncratic shocks when only deterministic contracts are considered.
Journal ArticleDOI
Risk-sorting and preference for team piece rates
Agnes Bäker,Vanessa Mertins +1 more
TL;DR: In this article, a sorting decision between two variable compensation systems, where both options carry wage risks, is studied, and the authors find evidence for both risk diversification considerations and free-riding concerns as drivers of self-selection.
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Efficiency in Partnerships with Joint Monitoring
TL;DR: In this article, a single partner observes the actions taken by a subset of the other partners and issues a report conditional on that observation, and no other partner has any additional information.
Journal ArticleDOI
Relative Performance or Team Evaluation? Optimal Contracts for Other-Regarding Agents
TL;DR: In this article, the authors derived optimal incentive contracts for agents with other-regarding preferences and provided a behavioral explanation for the empirically observed lack of relative performance evaluation, and showed that incentive contracts can be low-powered as compared to contracts for purely self-interested agents.
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.