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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The Emergence of Firms in a Population of Agents
TL;DR: In this article, a model in which heterogeneous agents form firms is described and empirically tested, and it is demonstrated analytically that there exist Nash equilibrium effort levels within any group, but these are Pareto-dominated by effort configurations that fail to be individually rational, and dynamically unstable for sufficiently large group size.
Book ChapterDOI
Chapter 14 The employment relationship: Job attachment, work effort, and the nature of contracts
TL;DR: In this paper, the authors discuss the economic forces that influence and define the important aspects of elements of the employment relationship in a market economy, including the supply of work effort by an individual, the investment in employer-employee match specific skills, and the provision of earnings insurance by the employer.
Journal ArticleDOI
The Optimal Concentration of Creditors
Arturo Bris,Ivo Welch +1 more
TL;DR: In this paper, the authors predict that measures of debt concentration relate positively to creditors' (aggregate) debt collection expenditures and positively to management's chosen expenditures to resist paying, which can lead to takeover failures or bank runs.
Journal ArticleDOI
Economic theories of the firm: past, present, and future
Paul Milgrom,John D. Roberts +1 more
TL;DR: In this paper, the authors explore the current state of the theory of the firm, with attention to its historical origins, and provide answers to the crucial theoretical question of why an organization controlled by a central authority cannot always duplicate the performance of a decentralized organization.
Journal ArticleDOI
Contracting with repeated moral hazard and private evaluations
TL;DR: In this paper, the authors considered a repeated moral hazard setting in which the Principal privately observes the Agent's output, and characterized the optimal contract for a finite horizon, and shown that the amount of resources required to implement it is independent of both the length of the horizon and the discount factor.
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.
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.