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Information Structures and the Delegation of Monitoring

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  • Pau Olivella

Abstract

If the owner of a firm cannot commit ex-ante to monitor his workers and the monitoring technology may accuse a diligent worker of shirking (produce a "false positive"), the lack of commitment problem is extremely severe : the worker may shirk even if monitoring is costless. However, the same presence of false positives is necessary for this commitment problem to be fully resolved either through delegation of monitoring or through contracting with a passive third party.
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  • Pau Olivella, 1989. "Information Structures and the Delegation of Monitoring," Discussion Papers 839, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:839
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    File URL: http://www.kellogg.northwestern.edu/research/math/papers/839.pdf
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    References listed on IDEAS

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    1. Sparks, Roger, 1986. "A Model of Involuntary Unemployment and Wage Rigidity: Worker Incentives and the Threat of Dismissal," Journal of Labor Economics, University of Chicago Press, vol. 4(4), pages 560-581, October.
    2. Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 327-360, December.
    3. Pau Olivella, 1995. "Information Structures and the Delegation of Monitoring," Annals of Economics and Statistics, GENES, issue 39, pages 1-32.
    4. Antle, R, 1982. "The Auditor As An Economic Agent," Journal of Accounting Research, Wiley Blackwell, vol. 20(2), pages 503-527.
    5. Joseph E. Stiglitz, 1984. "Theories of Wage Rigidity," NBER Working Papers 1442, National Bureau of Economic Research, Inc.
    6. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    7. 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.
    8. Demski, Joel S. & Sappington, David, 1984. "Optimal incentive contracts with multiple agents," Journal of Economic Theory, Elsevier, vol. 33(1), pages 152-171, June.
    9. Watts, Ross L & Zimmerman, Jerold L, 1983. "Agency Problems, Auditing, and the Theory of the Firm: Some Evidence," Journal of Law and Economics, University of Chicago Press, vol. 26(3), pages 613-633, October.
    10. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December.
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    Cited by:

    1. Pau Olivella, 1995. "Information Structures and the Delegation of Monitoring," Annals of Economics and Statistics, GENES, issue 39, pages 1-32.
    2. Debra J. Aron & Paul Olivella, 1991. "Bonuses and Penalties as Equilibrium Incentive Devices, with Application to Manufacturing Systems," Discussion Papers 932, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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