Delegation of Monitoring in a Principal-Agent Relationship
AbstractThis paper studies a principal-agent relationship with moral hazard in which the principal or the supervisor can monitor the agent's hidden action by using identical monitoring technologies. The paper shows that delegation of monitoring to the supervisor is profitable because of two effects. With delegation the principal can better regulate the incentives (incentive effect) and can commit to wage structures to which she could not commit without delegation (commitment effect). As a logical step collusion is introduced and it is shown that even with the possibility of collusion delegation is an optimal strategy.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1995-60.
Date of creation: 1995
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Other versions of this item:
- Strausz, Roland, 1997. "Delegation of Monitoring in a Principal-Agent Relationship," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 337-57, July.
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