We investigate the moral hazard problem in which the principal delegates multiple tasks to two agents. She imperfectly monitors the action choices by observing the public signals that are correlated through the macro shock and that satisfy conditional independence. When the number of tasks is sufficiently high, relative performance evaluation functions effectively for unique implementation, where the desirable action choices are supported by an approximate Nash equilibrium, and any approximate Nash equilibrium virtually induces the first-best allocation. Thus, this is an extremely effective method through which the principal divides the workers into two groups and makes them compete with each other.
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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number
CIRJE-F-419.
References listed on IDEAS 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.:
Maskin, Eric & Sjostrom, Tomas, 2001.
"Implementation Theory,"
Working Papers
5-01-1, Pennsylvania State University, Department of Economics.
[Downloadable!]
Maskin, Eric & Sjostrom, Tomas, 2002.
"Implementation theory,"
Handbook of Social Choice and Welfare,
in: K. J. Arrow & A. K. Sen & K. Suzumura (ed.), Handbook of Social Choice and Welfare, edition 1, volume 1, chapter 5, pages 237-288
Elsevier.
[Downloadable!] (restricted)