This paper adopts the principal-supervisor-agent hierarchy model pioneered by Tirole [Tirole, J., 1986. Hierarchies and bureaucracies: on the role of collusion in organizations. Journal of Law, Economics and Organization 2, 181-214] to analyze the optimal architecture of supervision. We consider a principal who encounters a double moral hazard problem. In particular, we examine the endogenously determined supervisory effort and the possibility of untruthful revelation of supervisor's message. The degree of accuracy for this endogenously chosen information architecture hinges upon the supervisory technology, the supervisor's reservation utility and the agent's production technology. Besides, though the principal's welfare would be lowered when the possibility of untruthful revelation is taken into account, we find that his desired supervisory effort level may be enhanced instead.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 71 (2009) Issue (Month): 2 (August) Pages: 473-485 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF