External vs Internal Monitors: The Role of Restructuring Consequences and Information Technologies
AbstractThis 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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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number 576.
Date of creation: Jul 1998
Date of revision:
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contracts; externalities; interest alignment; monitoring;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-02-07 (All new papers)
- NEP-IND-2000-02-07 (Industrial Organization)
- NEP-MIC-2000-02-07 (Microeconomics)
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