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Mechanism Sufficient Statistic in the Risk-Neutral Agency Problem

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Author Info
Dominique Demougin
Claude Fluet

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Abstract

This paper analyzes the efficient use of information in an agency relationship with moral hazard, when parties are risk-neutral. We show that, given an arbitrary information system, all relevant information from a mechanism-design point of view can be summarized by a binary statistic. We then show that this allows a complete ordering of information systems for the risk-neutral agency problem. These results are obtained under a weak convexity condition which does not rely on an exogenous ordering on signal sets. The condition is shown to be more general than existing requirements for justifying the first-order approach.

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Publisher Info
Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 154 (1998)
Issue (Month): 4 (December)
Pages: 622-
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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(199812)154:4_622:mssitr_2.0.tx_2-t

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Find related papers by JEL classification:
D2 - Microeconomics - - Production and Organizations
D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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  1. Benjamin Bental & Dominique Demougin, 2003. "Incentive Contracts and Total Factor Productivity," Cahiers de recherche 0325, CIRPEE. [Downloadable!]
    Other versions:
  2. Roland Strausz, 2004. "Buried in Paperwork: Excessive Reporting in Organizations," Discussion Papers 27, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  3. Jörg Budde, 2005. "Information in tournaments under limited liability," Bonn Econ Discussion Papers bgse21_2005, University of Bonn, Germany. [Downloadable!]
  4. Patrick W. Schmitz, 2005. "Workplace surveillance, privacy protection, and efficiency wages," Bonn Econ Discussion Papers bgse25_2005, University of Bonn, Germany. [Downloadable!]
    Other versions:
  5. Alexander K. Koch & Julia Nafziger, 2007. "Job Assignments under Moral Hazard: The Peter Principle Revisited," IZA Discussion Papers 2973, Institute for the Study of Labor (IZA). [Downloadable!]
  6. Fabian Herweg & Daniel Müller & Philipp Weinschenk, 2008. "The Optimality of Simple Contracts: Moral Hazard and Loss Aversion," Bonn Econ Discussion Papers bgse17_2008, University of Bonn, Germany. [Downloadable!]
  7. Eberhard Feess, 1999. "Lender Liability for Environmental Harm: An Argument Against Negligence Based Rules," European Journal of Law and Economics, Springer, vol. 8(3), pages 231-250, November. [Downloadable!] (restricted)
  8. Claude Fluet, 1998. "Régulation des risques et insolvabilité: le rôle de la responsabilité pour faute en information imparfaite," Cahiers de recherche du Département des sciences économiques, UQAM 9802, Université du Québec à Montréal, Département des sciences économiques. [Downloadable!]
  9. Dominique Demougin & Claude Fluet, 1998. "Ranking of Information Systems in Agency Models: An Integral Condition," Cahiers de recherche CREFE / CREFE Working Papers 70, CREFE, Université du Québec à Montréal. [Downloadable!]
  10. Schmitz, Patrick W., 2005. "Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions," CEPR Discussion Papers 5145, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Dominique Demougin & Claude Fluet, 1997. "Monitoring versus Incentives: Substitutes or Complements?," Cahiers de recherche CREFE / CREFE Working Papers 47, CREFE, Université du Québec à Montréal. [Downloadable!]
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