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Conditional Monitoring Policy Under Moral Hazard

Author

Listed:
  • Son Ku Kim

    (Department of Economics, University of California, Los Angeles, Los Angeles, California 90024)

  • Yoon S. Suh

    (Anderson Graduate School of Management, University of California, Los Angeles, Los Angeles, California 90024)

Abstract

This paper extends the previous research on conditional monitoring by allowing the principal to choose the level of monitoring investment and by finding the properties of an interior optimal monitoring policy which is not of a bang-bang nature. We show that, under a concave monitoring technology, the optimal monitoring investment is decreasing in the observed outcome and lower-tailed in a variety of contexts.

Suggested Citation

  • Son Ku Kim & Yoon S. Suh, 1992. "Conditional Monitoring Policy Under Moral Hazard," Management Science, INFORMS, vol. 38(8), pages 1106-1120, August.
    • Handle: RePEc:inm:ormnsc:v:38:y:1992:i:8:p:1106-1120
    DOI: 10.1287/mnsc.38.8.1106
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    File URL: http://dx.doi.org/10.1287/mnsc.38.8.1106
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    Citations

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    Cited by:

    1. Peter-J. Jost, 2023. "Auditing versus monitoring and the role of commitment," Review of Accounting Studies, Springer, vol. 28(2), pages 463-496, June.
    2. Lilia Filipova, 2007. "Monitoring and Privacy in Automobile Insurance Markets with Moral Hazard," Discussion Paper Series 293, Universitaet Augsburg, Institute for Economics.
    3. Lilia Filipova, 2007. "Monitoring and Privacy in Automobile Insurance Markets with Moral Hazard," Working Papers 026, Bavarian Graduate Program in Economics (BGPE).
    4. Marie-Cécile Fagart & Bernard Sinclair-Desgagné, 2007. "Ranking Contingent Monitoring Systems," Management Science, INFORMS, vol. 53(9), pages 1501-1509, September.
    5. Georgiadis, George & Szentes, Balázs, 2020. "Optimal monitoring design," LSE Research Online Documents on Economics 104062, London School of Economics and Political Science, LSE Library.

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