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Multi-Group Incentives

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Author Info
Hitoshi Matsushima (Faculty of Economics, University of Tokyo)

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Abstract

This paper investigates the agency problem with moral hazard, where the principal hires multiple agents, and can only imperfectly monitor their action choices by observing their correlated public signals. The principal will penalize any detected deviant only by firing her and other agents. The key assumption of the paper is that agents are divided into multiple distinct groups. Within each group, all its members can make the binding commitments to achieve their collusive action choices. It is shown that it may be easier to provide the agents with the incentive to make the most desired action choices when multiple groups are established than when either no group or only the grand group is established. It is also shown that in terms of uniqueness, relative performance evaluation through inter-group competition will work better than that through inter-individual competition.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-201.

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Length: 21 pages
Date of creation: Mar 2003
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Handle: RePEc:tky:fseres:2003cf201

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  1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October. [Downloadable!] (restricted)
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  2. Macho-Stadler, Ines & Perez-Castrillo, J. David, 1993. "Moral hazard with several agents : The gains from cooperation," International Journal of Industrial Organization, Elsevier, vol. 11(1), pages 73-100, March. [Downloadable!] (restricted)
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  3. Ma, Ching-To, 1988. "Unique Implementation of Incentive Contracts with Many Agents," Review of Economic Studies, Blackwell Publishing, vol. 55(4), pages 555-72, October. [Downloadable!] (restricted)
  4. Varian, H.R., 1989. "Monitoring Agents With Other Agents," Papers 89-18, Michigan - Center for Research on Economic & Social Theory.
  5. Ramakrishnan, Ram T S & Thakor, Anjan V, 1991. "Cooperation versus Competition in Agency," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(2), pages 248-83, Fall.
  6. Green, Jerry R & Stokey, Nancy L, 1983. "A Comparison of Tournaments and Contracts," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 349-64, June. [Downloadable!] (restricted)
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  7. Mookherjee, Dilip, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Blackwell Publishing, vol. 51(3), pages 433-46, July. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  9. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring. [Downloadable!] (restricted)
  10. Legros, Patrick & Matsushima, Hitoshi, 1991. "Efficiency in partnerships," Journal of Economic Theory, Elsevier, vol. 55(2), pages 296-322, December. [Downloadable!] (restricted)
  11. Tirole, Jean, 1991. "Collusion and the Theory of Organizations," IDEI Working Papers 9, Institut d'Économie Industrielle (IDEI), Toulouse.
  12. Matsushima, Hitoshi, 2001. "Multimarket Contact, Imperfect Monitoring, and Implicit Collusion," Journal of Economic Theory, Elsevier, vol. 98(1), pages 158-178, May. [Downloadable!] (restricted)
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  13. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring. [Downloadable!] (restricted)
  14. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hitoshi Matsushiima, 2006. "Relative Performance Evaluation between Multitask Agents," CIRJE F-Series CIRJE-F-419, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
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