Journal ArticleDOI
The Moral Hazard of Budget-Breaking
Mukesh Eswaran,Ashok Kotwal +1 more
TLDR
In this article, the authors explain why the use of budget-breaking schemes is not so widespread as that of active monitoring, despite the fact that such schemes would save the resources expended on supervision.Abstract:
It has recently been suggested in the agency literature that moral hazard in teams can be dealt with by introducing a third party who breaks the budget-balancing constraint, and that this facilitates the design of contracts that can sustain the Pareto optimum as a (perfect) Nash equilibrium. This note offers an explanation for why the use of budget-breaking schemes is not so widespread as that of active monitoring, despite the fact that such schemes would save the resources expended on supervision. The note demonstrates that allowing the budget to be broken introduces the potential for moral hazard on the part of the third party, which could render the proposed equilibrium incredible.read more
Citations
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Book
Incomplete contracts and renegotiation
Oliver Hart,John Moore +1 more
TL;DR: In this article, the authors characterize an optimal contract in two cases: when a contract is being used to facilitate trade between two agents who must undertake relationship-specific investments, it is generally not possible to implement the first-best.
Book ChapterDOI
The theory of contracts
Oliver Hart,Bengt Holmstrom +1 more
TL;DR: The authors presented at the World Congress of the Econometric Society, Cambridge, Massachusetts, 1985, The authors, a paper that was later used at the International Journal of Mathematical Information.
Book
Toward a Comparative Institutional Analysis
TL;DR: In the latter half of the 1990s, we rented a house facing the Pacific Ocean from an artist every summer as discussed by the authors and our family enjoyed meals made from the organic produce we bought at the farmers' market (so many varieties of tomatoes); we also went to the harbor to buy albacore tuna and fresh sea urchin still in its thorny shell.
Book ChapterDOI
Chapter 2 The theory of the firm
Bengt Holmstrom,Jean Tirole +1 more
TL;DR: The theory of the firm has long posed a problem for economists as discussed by the authors, and the main hypothesis is that contractual designs, both implicit and explicit, are created to minimize transaction costs between specialized factors of production.
References
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Journal ArticleDOI
Production, Information Costs, and Economic Organization
Armen A. Alchian,Harold Demsetz +1 more
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.
Posted Content
Moral Hazard in Teams
TL;DR: In this paper, 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.
Journal ArticleDOI
Moral Hazard in Teams
TL;DR: 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.