Monitoring Subcontracting in a Suppliers' Hierarchy
AbstractIn this paper we study the delegation of a production process in a three-tier hierarchy. The principal contracts directly only with the supplier that produces the ?rst input leaving him in charge of the contract for the production of the second input. We allow the principal to costlessly monitor the communication between the agents at the subcontracting stage in an attempt to save on informa- tional rents and improve productive e¢ ciency. We show that, if the contractor is free to choose the type of subcontract, he must be given additional incen- tives to acquire information about the subcontractor which will then be object of the monitoring. The monitoring is therefore much less e¤ective then when the principal can force the contractor into choosing her preferred subcontract.
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Bibliographic InfoPaper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 172.
Length: 29 pages
Date of creation: Jul 2009
Date of revision: Jul 2009
Adverse Selection; Hierarchies; Delegation; Monitoring.;
Other versions of this item:
- Michela Cella, 2011. "Monitoring subcontracting in a suppliers' hierarchy," Oxford Economic Papers, Oxford University Press, vol. 63(3), pages 523-548, July.
- Michela Cella, 2005. "Monitoring Subcontracting in a Suppliers` Hierachy," Economics Series Working Papers 233, University of Oxford, Department of Economics.
- D20 - Microeconomics - - Production and Organizations - - - General
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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