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
Efficiency of Nonpoint Source Pollution Instruments: An Experimental Study
TL;DR: In this paper, the authors compare the efficiency of some of these instruments: an input-based tax, an ambient tax/subsidy, ambient tax, and a group fine, and the experimental data show that the input tax and the ambient tax are very efficient and reliable.
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Does the External Monitoring Effect of Financial Analysts Deter Corporate Fraud in China
TL;DR: Wang et al. as discussed by the authors examined whether analyst coverage influences corporate fraud in China and showed a negative association between corporate fraud propensity and analyst coverage, and that this effect is more pronounced among non-state-owned enterprises (NSOEs) which are more dependent on the stock market for external funding.
Journal ArticleDOI
Objective versus Subjective Indicators of Managerial Performance
TL;DR: In this article, the authors examined the structure of optimal bonus pool arrangements in a traditional agency setting with subjective performance indicators, and addressed the contractual value of additional information variables, the desirability of compressed incentive schemes and the nature of relative performance evaluation in settings with multiple agents.
Journal ArticleDOI
Compensation and Peer Effects in Competing Sales Teams
Tat Y. Chan,Jia Li,Lamar Pierce +2 more
TL;DR: In this article, the authors examined how compensation systems impact peer effects and competition in collocated sales teams and found that heterogeneity in worker ability enhances firm performance under team-based compensation while hurting individual-based firms.
Journal ArticleDOI
A Dynamic Theory of Holdup
Yeon-Koo Che,József Sákovics +1 more
TL;DR: In this article, the authors study the holdup problem in a dynamic model of bargaining and investment, which allows the parties to continue to invest until they agree on the terms of trade.
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.