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
Do Top Managers Work Harder When They Are Monitored
TL;DR: In this paper, the authors explore whether eclectic theory (principal-agent theory incorporating key insights of social exchange theory) leads to better predictions about internal control systems in corporations than does principal agent theory.
Posted Content
Fairness, Incentives and Contractual Incompleteness
TL;DR: In this article, the authors show that concerns for fairness may have dramatic consequences for the optimal provision of incentives in a moral hazard context and suggest that the existence of fair actors may be an important reason why many contracts are left deliberately incomplete.
Journal ArticleDOI
Inequity Aversion and Team Incentives
TL;DR: In this article, the authors study optimal contracts in a simple model where employees are averse to inequity, as modeled by Fehr and Schmidt (1999), and derive conditions for inequity aversion to be in itself a reason to form work teams of distributionally concerned employees, even in situations in which effort is contractible.
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Bundling Information Goods: Pricing, Profits and Efficiency
Yannis Bakos,Erik Brynjolfsson +1 more
TL;DR: In this article, the authors analyze pricing strategies for digital information goods, such as those increasingly available via the Internet, and show that a monopolist selling information goods in large bundles instead of individually may nearly eliminate this inefficiency.
Journal ArticleDOI
Technology transfer with moral hazard
TL;DR: In this article, an incomplete contract model of the licensing relationship is developed that is susceptible to the moral hazard problem. And the optimal form of licensing derived in the model generates predictions that seem to be consistent with actual practice.
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.
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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.
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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.