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Obstructive Monitoring

Author

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  • Aaron Finkle

    (Department of Economics, Davidson College)

Abstract

This paper considers a principal-agent relationship in which the principal's monitoring can be obstructive to the agent, reducing the agent's productivity. We find that, when monitoring is obstructive, the optimal output schedule is distorted in all directions - the efficient agent produces more and the inefficient agent produces less than the first-best level. Moreover, if the principal has a choice, she will make monitoring deliberately obstructive in the optimal contract as a penalty device, even though it reduces the agent's productivity. Publication Status: working paper

Suggested Citation

  • Aaron Finkle, "undated". "Obstructive Monitoring," Working Papers 14-05, Davidson College, Department of Economics.
    • Handle: RePEc:dav:wpaper:14-05
    as

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    References listed on IDEAS

    as
    1. Radner, Roy, 1981. "Monitoring Cooperative Agreements in a Repeated Principal-Agent Relationship," Econometrica, Econometric Society, vol. 49(5), pages 1127-1148, September.
    2. Roland Strausz, 1997. "Delegation of Monitoring in a Principal-Agent Relationship," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(3), pages 337-357.
    3. Kim C. Border & Joel Sobel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(4), pages 525-540.
    4. Stephanie A. Dunne & Mark A. Loewenstein, 1995. "Costly Verification of Cost Performance and the Competition for Incentive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 690-703, Winter.
    5. Stephen D. Williamson, 1987. "Costly Monitoring, Loan Contracts, and Equilibrium Credit Rationing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(1), pages 135-145.
    6. Fahad Khalil, 1997. "Auditing Without Commitment," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 629-640, Winter.
    7. Bentley W. MacLeod, 2003. "Optimal Contracting with Subjective Evaluation," American Economic Review, American Economic Association, vol. 93(1), pages 216-240, March.
    8. Khalil Fahad & Lawarree Jacques, 1995. "Input versus Output Monitoring: Who Is the Residual Claimant?," Journal of Economic Theory, Elsevier, vol. 66(1), pages 139-157, June.
    9. David P. Baron & David Besanko, 1984. "Regulation, Asymmetric Information, and Auditing," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 447-470, Winter.
    10. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    11. Lewis, Tracy R & Sappington, David E M, 1997. "Information Management in Incentive Problems," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 796-821, August.
    12. Nahum D. Melumad & Dilip Mookherjee, 1989. "Delegation as Commitment: The Case of Income Tax Audits," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 139-163, Summer.
    13. Singh, Nirvikar, 1985. "Monitoring and Hierarchies: The Marginal Value of Information in a Principal-Agent Model," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 599-609, June.
    14. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Principal-Agent; Obstruction; Monitoring Creation Date: 2014;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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