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
More filters
Journal ArticleDOI
Product-market competition and managerial slack
TL;DR: The authors analyzes the effect of product-market competition on managerial incentives and shows that competition may actually exacerbate the incentive problem, and the difference in results derives from different assumptions about managerial preferences.
Journal ArticleDOI
Tolerance for Failure and Corporate Innovation
Xuan Tian,Tracy Yue Wang +1 more
TL;DR: In this article, the authors examine whether tolerance for failure spurs corporate innovation based on a sample of venture capital (VC) backed IPO firms and develop a novel measure of VC investors' failure tolerance by examining their tendency to continue investing in a venture conditional on the venture not meeting milestones.
Journal ArticleDOI
Short-term contracts and long-term agency relationships
TL;DR: In this article, the authors show that long-term contracts are valuable only if optimal contracting requires commitment to a plan today that would not otherwise be adopted tomorrow, and hence short-term contract are sufficient if all public information can be used in contracting, the agent can acess a bank on equal terms with the principal, recontracting takes place with common knowledge about technology and preferences and the frontier of expected utility payoffs generated by the set of incentive compatible contracts is downward sloping at all times.
Posted Content
Investments, Holdup, and the Form of Market Contracts.
TL;DR: In this paper, incomplete contracts to induce efficient investment are analyzed and shown to generate "take or pay" contracts and explain why firms sometimes pay for specific investments that appear to benefit employees directly.
Book ChapterDOI
Information Sharing and Supply Chain Coordination
TL;DR: This chapter discusses the information pertaining to the downstream part of the supply chain and then reviews the upstream information and addresses the incentive issues in information sharing.
References
More filters
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.