Monitoring Subcontracting in a Suppliers` Hierachy
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 first 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 informational rents and improve productive efficiency. We show that, if the contractor is free to choose the type of subcontract, he must be given additional incentives to acquire information about the subcontractor which will then be the object of the monitoring. The monitoring is therefore much less effective then when the principal can force the contractor into choosing her preferred subcontract.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 233.
Date of creation: 01 Apr 2005
Date of revision:
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, 2009. "Monitoring Subcontracting in a Suppliers' Hierarchy," Working Papers 172, University of Milano-Bicocca, Department of Economics, revised Jul 2009.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-18 (All new papers)
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