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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Indexed executive stock options
TL;DR: In this article, the authors design and derive a pricing model for an executive stock option with a strike price indexed to a benchmark and investigate its valuation and incentive implications, and design an optional penalty function to reduce the payoff if executives manipulate specified model parameters such as volatility.
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Information Environment and the Investment Decisions of Multinational Corporations
TL;DR: In this paper, the authors examined how the external information environment in which foreign subsidiaries operate affects the investment decisions of multinational corporations (MNCs) and found that MNCs in country-industries with more transparent information environments are more responsive to local growth opportunities than are those of foreign subsidiaries in country industries with less transparent information environment.
Journal ArticleDOI
Private and Public Relative Performance Information under Different Compensation Contracts
TL;DR: In this article, the conditions under which providing relative performance information to employees has a positive effect on performance when compensation is not tied to peer performance were investigated, via an experiment, and the effect of relative performance (present or absent) on performance under two compensation contracts (flat-wage or individual performance-based).
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Resolving double moral hazard problems with buyout agreements
TL;DR: In this article, the authors consider a double moral hazard problem in which the efforts of two parties, e.g., a principal who initially owns an enterprise and a risk-averse agent in the enterprise, are not verifiable.
Journal ArticleDOI
Friends, Family, or Fools: Entrepreneur Experience and its Implications for Equity Distribution and Resource Mobilization
Reddi Kotha,Gerard George +1 more
TL;DR: This article used a sample of 611 entrepreneurs in the U.S. to examine why some entrepreneurs are more likely than others to distribute ownership selectively to helpers, and found that entrepreneurs with specific industry experience and start-up experience are able to provide ownership more selectively and raise more resources from their helpers.
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.
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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.