Hierarchic contracting

This file is part of IDEAS, which uses RePEc data

Hierarchic contracting

Author Info

Rafael Hortala-Vallve
Miguel Sanchez

Additional information is available for the following registered author(s):

Rafael Hortala-Vallve

Abstract

We analyze the contracting structure in a moral hazard setting with several agents whereoutput is produced jointly and is the only contractible variable. Since the salary of each agentis a function of all agents efforts, a positive externality arises between them. This externalityis not internalised by a centralised structure where the principal contracts directly with eachagent. Instead, we find that a hierarchic structure (i.e. the delegation of "contracting rights"from the principal to the agents) internalises the externality by making agents "residualclaimants". Consequently, the second best situation can be improved upon just by changingthe contracting structure of the principal-agents relationship. The analysis is relevant to theliterature on decentralisation, outsourcing, subcontracting and intra-firm organization.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

Publisher Info
Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Distributional Analysis Research Programme Papers with number 73.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:cep:stidar:73

Contact details of provider:
Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

For technical questions regarding this item, or to correct its listing, contact: ().

Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March. [Downloadable!] (restricted)
Other versions:
- Bengt Holmstrom & Paul R. Milgrom, 1985. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Cowles Foundation Discussion Papers 742, Cowles Foundation, Yale University. [Downloadable!]
Itoh Hideshi, 1993. "Coalitions, Incentives, and Risk Sharing," Journal of Economic Theory, Elsevier, vol. 60(2), pages 410-427, August. [Downloadable!] (restricted)
Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October. [Downloadable!] (restricted)
Jelovac, Izabela & Macho-Stadler, Ines, 2002. "Comparing organizational structures in health services," Journal of Economic Behavior & Organization, Elsevier, vol. 49(4), pages 501-522, December. [Downloadable!] (restricted)
Other versions:
- Jelovac, I. & Macho-Stadler, I., 1998. "Comparing Organizational Structures in Health Services," UFAE and IAE Working Papers 412.98, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
Macho-Stadler, Ines & Perez-Castrillo, J David, 1998. "Centralized and Decentralized Contracts in a Moral Hazard Environment," Journal of Industrial Economics, Blackwell Publishing, vol. 46(4), pages 489-510, December. [Downloadable!] (restricted)
Other versions:
- Perez-Castrillo, J.D. & Macho-Stadler, I., 1992. "Centralized and Decentralized Contracts in a Moral Hazad Environment," UFAE and IAE Working Papers 179.92, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
Prendergast, Canice J, 1995. "A Theory of Responsibility in Organizations," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 387-400, July. [Downloadable!] (restricted)
Choe, Chongwoo & Park, In-Uck, 2003. "Delegated Contracting and Corporate Hierarchies," CEI Working Paper Series 2003-23, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
Other versions:
- Choe, Chongwoo, 2002. "Delegated Contracting and Corporate Hierarchies," CEI Working Paper Series 2002-7, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
- In-Uck Park & Chongwoo Choe, 2004. "Delegated Contracting and Corporate Hierarchies," Econometric Society 2004 Latin American Meetings 14, Econometric Society. [Downloadable!]
Baliga, Sandeep & Sjostrom, Tomas, 1998. "Decentralization and Collusion," Journal of Economic Theory, Elsevier, vol. 83(2), pages 196-232, December. [Downloadable!] (restricted)
Other versions:
- Sandeep Baliga & Tomas Sjostrom, 1998. "Decentralization and Collusion," Discussion Papers 1210, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
- Sandeep Baliga & Tomas Sjostrom, 1996. "Decentralization and Collusion," Harvard Institute of Economic Research Working Papers 1757, Harvard - Institute of Economic Research.
Itoh, Hideshi, 1994. "Job design, delegation and cooperation: A principal-agent analysis," European Economic Review, Elsevier, vol. 38(3-4), pages 691-700, April. [Downloadable!] (restricted)
Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-36, May. [Downloadable!] (restricted)
Nahum D. Melumad & Dilip Mookherjee & Stefan Reichelstein, 1995. "Hierarchical Decentralization of Incentive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 654-672, Winter. [Downloadable!] (restricted)
Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn. [Downloadable!] (restricted)

Full references

Statistics
Access and download statistics

Did you know? You too can volunteer with RePEc.

This page was last updated on 2009-12-15.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.