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External vs Internal Monitors: The Role of Restructuring Consequences and Information Technologies

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  • Will, Heide C. U.
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    Abstract

    This paper analyses the relative efficiency of internal and external monitors. It confirms the intuition that, if the principal and her employees share aligned interests, internal monitoring is superior to external monitoring; vice versa if interests diverge. This result is not robust for two alternative information technologies considered. If monitoring effort affects the frequency instead of the accuracy of produced signals, the optimal monitoring mode depends on the contingency policy that is adopted in case monitoring fails. If, by contrast, the obtained signals are nonverifiable, then internal monitoring is weakly dominant.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfa/bonsfa576.pdf
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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number 576.

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    Length: pages
    Date of creation: Jul 1998
    Date of revision:
    Handle: RePEc:bon:bonsfa:576

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    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

    Related research

    Keywords: contracts; externalities; interest alignment; monitoring;

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    1. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    2. Strausz, Roland, 1997. "Delegation of Monitoring in a Principal-Agent Relationship," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 337-57, July.
    3. Cremer, Jacques, 1995. "Arm's Length Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 275-95, May.
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    1. Industrial Sociology (FCT-UNL)

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