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Optimal Monitoring Policies in Agencies

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Author Info
Ronald A. Dye
Abstract

This article considers a principal-agent problem in which the principal has access to a costly monitoring technology that can be used to acquire additional information about the agent's actions subsequent to observing the agent's output. Although randomized monitoring policies are feasible, we show that in a variety of contexts optimal monitoring policies are deterministic and "lower-tailed," that is, there exists some critical level of output such that further investigation of the agent's actions occurs if and only if output falls below this critical level.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28198623%2917%3A3%3C339%3AOMPIA%3E2.0.CO%3B2-G&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 17 (1986)
Issue (Month): 3 (Autumn)
Pages: 339-350
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Handle: RePEc:rje:randje:v:17:y:1986:i:autumn:p:339-350

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  1. Ying Yan, 1996. "Credit Rationing, Bankruptcy Cost, and Optimal Debt Contract for Small Business," Finance 9612003, EconWPA. [Downloadable!]
  2. Alberto Bisin & Piero Gottardi & Adriano A. Rampini, 2004. "Managerial Hedging and Portfolio Monitoring," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  3. Chander, Parkash & Wilde, Louis., 1994. "A General Characterization of Optimal Income Taxation and Enforcement," Working Papers 791, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  4. Marie-Cécile Fagart & Bernard Sinclair-Desgagné, 2002. "Auditing Policies and Information Systems in Principal-agent Analysis," Cahiers de recherche 02-02, HEC Montréal, Institut d'économie appliquée. [Downloadable!]
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  5. Edward S. Prescott, 2002. "Can risk-based deposit insurance premiums control moral hazard?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 87-100. [Downloadable!]
  6. Lilia Filipova, 2007. "Monitoring and Privacy in Automobile Insurance Markets with Moral Hazard," Discussion Paper Series 293, Universitaet Augsburg, Institute for Economics. [Downloadable!]
  7. Parkash Chander, 2004. "Risk Aversion and Income Tax Enforcement," Econometric Society 2004 Far Eastern Meetings 531, Econometric Society. [Downloadable!]
  8. Jeffrey M. Lacker, 1989. "Limited commitment and costly enforcement," Working Paper 90-02, Federal Reserve Bank of Richmond. [Downloadable!]
  9. Ying Yan, 1997. "Credit rationing, bankruptcy cost, and the optimal debt contract for small business," Working Paper 9702, Federal Reserve Bank of Cleveland. [Downloadable!]
  10. Joseph G. Haubrich, 1995. "Imperfect state verification and financial contracting," Working Paper 9506, Federal Reserve Bank of Cleveland. [Downloadable!]
  11. Bernard Sinclair-Desgagné & Marie-Cécile Fagart, 2004. "Auditing policies and information," Econometric Society 2004 North American Winter Meetings 86, Econometric Society. [Downloadable!]
  12. Schüler, Martin, 2003. "Incentive Problems in Banking Supervision : The European Case," ZEW Discussion Papers 03-62, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  13. Arun Malik, 2007. "Optimal environmental regulation based on more than just emissions," Journal of Regulatory Economics, Springer, vol. 32(1), pages 1-16, August. [Downloadable!] (restricted)
  14. Joost de Laat, 2008. "Household Allocations and Endogenous Information," Cahiers de recherche 0827, CIRPEE. [Downloadable!]
  15. Louis Kaplow & Steven Shavell, 1994. "Optimal Law Enforcement with Self-Reporting of Behavior," NBER Working Papers 3822, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Edward S. Prescott, 1999. "A primer on moral-hazard models," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 47-78. [Downloadable!]
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