Too few cooks spoil the broth
AbstractWe consider a principal-agent relationship in which two tasks need to be carried out. Each task involves a decision. The principal can neither contract on the two decisions nor on the benefit which she receives from them but only on a signal, which simultaneously reflects both. We show that the efficient choice cannot be achieved if the principal employs a single agent. If, however, the principal employs a second agent, she can set a payment scheme such that the efficient choice can be implemented. We also examine when this implementation is vulnerable to collusion.
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Bibliographic InfoPaper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 03/090.
Length: 17 pages
Date of creation: Sep 2003
Date of revision:
hidden action; moral hazard; optimal contract; job design; asymmetric information;
Other versions of this item:
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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