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
The Presence, Value, and Incentive Properties of Relative Performance Evaluation in Executive Compensation Contracts
TL;DR: In this paper, the authors developed new methods to characterize relative performance evaluation (RPE) contracts and measure their value and incentive properties, and found that RPE awards convey to executives the incentive to increase shareholder wealth.
Journal ArticleDOI
Codes of Ethics as Contractarian Constraints on the Abuse of Authority within Hierarchies: A Perspective from the Theory of the Firm
TL;DR: In this article, a contractarian view of corporate codes of ethics is presented, based on the idea of a Social Contract based on Co-operative Bargaining Games and deduces from it the fair/efficient 'Constitution' of the firm endorsed by means of a well-devised corporate code of ethics.
Journal ArticleDOI
Contracting with Repeated Moral Hazard and Private Evaluations
William Fuchs,William Fuchs +1 more
TL;DR: In this article, the authors considered a repeated moral hazard setting in which the Principal privately observes the Agent's output and showed that there is no loss from restricting the analysis to contracts that the Agent is supposed to exert effort every period, receives a constant efficiency wage and no feedback until he is fired.
Journal ArticleDOI
On Transparency in Organizations
TL;DR: In this article, it was shown that full transparency is generically suboptimal whenever the dimension of the information held by the principal exceeds the dimensions of the action of the agent.
Dissertation
A Normative Model of Professionalization: Implications for Business Ethics
TL;DR: In this article, the authors draw on an information theoretic framework to provide a novel analysis of the role of professions in society and argue that norms should be viewed as a fundamental transaction-cost minimizing professional governance.
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.