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
On the Interplay of Hidden Action and Hidden Information in Simple Bilateral Trading Problems
TL;DR: In this paper, it is shown that the first best cannot be achieved whenever the ex post efficient trade decision is trivial, and an application of the model to the choice of risky projects is briefly discussed.
Journal ArticleDOI
Managers' Discretionary Adjustments: The Influence of Uncontrollable Events and Compensation Interdependence
TL;DR: This article examined the influence of the likelihood of future negative uncontrollable events and compensation interdependence on managers' willingness to make adjustments for the effect of a negative uncontrollability event on a single employee.
Book ChapterDOI
Issues in the Design of Incentive Schemes for Nonpoint Source Pollution Control
TL;DR: A large body of economic literature has addressed the question of how to design policies to control environmental pollution efficiently as discussed by the authors, and the vast majority of this literature was concerned with point sources of pollution where the regulator can observe the pollution emissions of individual agents (perhaps at some cost) and there are no important stochastic influences on the system.
Journal ArticleDOI
The Agency Structure of Loan Syndicates
TL;DR: In this paper, a large sample test on the Dealscan database showed that repeated contracting between the same banks explains the moderate magnitude of monitoring effects, and that co-agents monitor the leader on behalf of syndicate members to mitigate informational asymmetry problems.
Journal ArticleDOI
Real options and real value: The role of employee incentives to make specific knowledge investments
Heli Wang,Sonya S. Lim +1 more
TL;DR: In this paper, the authors developed a model of real option investment that explicitly incorporates the role of employee incentives and found that the effect of investing in a real option project on employee incentives may be positive, further increasing the value of the project, or negative, sometimes more than offsetting the benefit of flexibility and resulting in reduced project value.
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.