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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Journal ArticleDOI
Risk and CEO turnover
TL;DR: In this article, the authors investigate how performance risk impacts a board's ability to learn about the unknown talent of a chief executive officer (CEO) and investigate relations between the threat of termination and CEO compensation, showing that for retained CEOs, both subsequent pay-performance-sensitivity and pay levels decrease the probability of turnover.
BookDOI
Organizational encounters with risk
Bridget M. Hutter,Michael Power +1 more
TL;DR: Hutter and Power as mentioned in this paper introduce the notion of ways of seeing and understandings of risk in organisational settings, and present a set of ways to see and understand risk in organizational settings.
Posted Content
Gift Exchange and Workers' Fairness Concerns: When Equality is Unfair
Johannes Abeler,Johannes Abeler,Steffen Altmann,Steffen Altmann,Sebastian Kube,Sebastian Kube,Matthias Wibral,Matthias Wibral +7 more
TL;DR: In this article, the authors study how different payment modes influence the effectiveness of gift exchange as a contract enforcement device and find that the use of equal wages elicits substantially lower efforts.
Journal ArticleDOI
Product market competition, corporate governance and firm performance: An empirical analysis for Germany
TL;DR: In this paper, an econometric analysis of firm performance in Germany was conducted based on a unique panel data set with detailed information on almost 400 manufacturing firms over the 1986-94 period, and they found that firms operating in industries which are characterized by more intensive product market competition experience higher rates of productivity growth.
Journal ArticleDOI
Bonus culture: : Competitive pay, screening, and multitasking
Roland Bénabou,Jean Tirole +1 more
TL;DR: In this article, the authors embed multitasking and screening within a Hotelling framework to analyze the impact of labor market competition on the structure of compensation and find that as competition intensifies, monopsonistic underincentivization of low-skill agents first decreases and then gives way to growing overincentivisation of high-skill ones.
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.