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Monitoring the Principal with Multiple Agents

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  • Srabana Gupta
  • Richard E. Romano

Abstract

Double moral hazard arises in the principal-agent model when both parties provide a nonverifiable input following contracting. Balanced-budget contracts are generally second best. If the principal's input is public to two agents, which often characterizes franchising, for example, then balanced-budget contracts exist that resolve fully double moral hazard. Agent payoffs depend on both outputs to correct principal moral hazard, rather than correlation in random effects on outputs. The equilibrium in first-best choices implemented by the contract is also unique and coalition-proof.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 29 (1998)
Issue (Month): 2 (Summer)
Pages: 427-442

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Handle: RePEc:rje:randje:v:29:y:1998:i:summer:p:427-442

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Cited by:
  1. Robert Dur & Arjan Non & Hein Roelfsema, 2009. "Reciprocity and Incentive Pay in the Workplace," SOEPpapers on Multidisciplinary Panel Data Research 177, DIW Berlin, The German Socio-Economic Panel (SOEP).
  2. Ambrus, Attila, 2006. "Coalitional Rationalizability," Scholarly Articles 3200266, Harvard University Department of Economics.
  3. Corbett, Charles J. & DeCroix, Gregory A. & Ha, Albert Y., 2005. "Optimal shared-savings contracts in supply chains: Linear contracts and double moral hazard," European Journal of Operational Research, Elsevier, vol. 163(3), pages 653-667, June.
  4. Hiroshi Osano & Mami Kobayashi, 2003. "Double Moral Hazard and Renegotiation," KIER Working Papers 563, Kyoto University, Institute of Economic Research.
  5. Jahn, Alexander, 2011. "Agency-Beziehungen in Verbundgruppen," Arbeitspapiere 105, Westfälsche Wilhelms-Universität Münster (WWU), Institut für Genossenschaftswesen.
  6. Robert Dur & Arjan Non & Hein Roelfsema, 2008. "Reciprocity and Incentive Pay in the Workplace," Tinbergen Institute Discussion Papers 08-080/1, Tinbergen Institute.
  7. Zhao, Rui R., 2007. "Dynamic risk-sharing with two-sided moral hazard," Journal of Economic Theory, Elsevier, vol. 136(1), pages 601-640, September.
  8. Tsoulouhas, Theofanis, 1999. "Do tournaments solve the two-sided moral hazard problem?," Journal of Economic Behavior & Organization, Elsevier, vol. 40(3), pages 275-294, November.

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