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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Joint Product Improvement by Client and Customer Support Center: The Role of Gain-Share Contracts in Coordination
TL;DR: This research provides a systematic theoretical framework that accounts for the prevalence of gain-share contracts in the IT industry's joint improvement efforts, and it provides guiding principles for understanding the increased role for customer support centers in product improvement.
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Collusion under Yardstick Competition An Experimental Study
TL;DR: In this paper, it was shown that in a repeated game setting, schemes will be more prone to collusion the smaller are the rents to the agents, in case they behave noncooperatively.
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Executive Compensation, Incentives, and Risk
Dirk Jenter,Dirk Jenter +1 more
TL;DR: The authors analyzes the link between equity-based compensation and created incentives by deriving a measure of incentives suitable for both linear and non-linear compensation contracts, analyzing the effect of risk on incentives, and clarifying the role of the agent's private trading decisions in incentive creation.
Journal ArticleDOI
Incentive approaches to overcome moral hazard in port concession agreements
TL;DR: In this article, a game theory foundation for port concession agreements, using the incentive mechanism design, is provided, and a model involving performance-based concession fees to align successfully the Port Authorities interests with those of the terminal operators.
Posted Content
Knowledge Sharing and Incentive Design in Production Environments: Theory and Evidence
TL;DR: In this article, the authors develop and empirically test a parsimonious model of how specific knowledge and the value of knowledge sharing influence manufacturing plants' incentive design choices, and they find that firms rely more on group-based (as opposed to individual-based) output performance measures when either knowledge sharing is higher or the extent of agents' specific knowledge is lower.
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.
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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.