IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v53y2007i9p1501-1509.html
   My bibliography  Save this article

Ranking Contingent Monitoring Systems

Author

Listed:
  • Marie-Cécile Fagart

    () (LIRAES-Paris V and Université de Rouen, Rouen, France)

  • Bernard Sinclair-Desgagné

    () (HEC Montréal, CIRANO, Montréal, Quebéc H3T 2A7, Canada and École Polytechnique, Paris, France)

Abstract

This paper seeks to provide a ranking of information systems in a setting of contingent monitoring. Control strategies that make the acquisition of additional information conditional on observing certain outcomes largely elude the existing ranking criteria. We show that this happens because contingent monitoring involves more than the classical trade-off between risk sharing and incentives; it also requires a balancing of incentives and downside risk. We then develop a refinement of the most common information system orderings that conveys this feature. This allows us to reinterpret and generalize some of the literature's key results concerning, for instance, auditing policies with independent or with correlated signals and monitoring systems where the precision of an added signal is endogenous.

Suggested Citation

  • Marie-Cécile Fagart & Bernard Sinclair-Desgagné, 2007. "Ranking Contingent Monitoring Systems," Management Science, INFORMS, vol. 53(9), pages 1501-1509, September.
  • Handle: RePEc:inm:ormnsc:v:53:y:2007:i:9:p:1501-1509
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1060.0693
    Download Restriction: no

    References listed on IDEAS

    as
    1. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    2. Claude Fluet & Dominique Demougin, 2001. "Ranking of information systems in agency models: an integral condition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 17(2), pages 489-496.
    3. Keenan, Donald C & Snow, Arthur, 2002. "Greater Downside Risk Aversion," Journal of Risk and Uncertainty, Springer, vol. 24(3), pages 267-277, May.
    4. Louis Eeckhoudt & Harris Schlesinger, 2006. "Putting Risk in Its Proper Place," American Economic Review, American Economic Association, vol. 96(1), pages 280-289, March.
    5. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    6. repec:bla:joares:v:23:y:1985:i:2:p:633-647 is not listed on IDEAS
    7. Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The Economics of Career Concerns, Part I: Comparing Information Structures," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 183-198.
    8. Ronald A. Dye, 1986. "Optimal Monitoring Policies in Agencies," RAND Journal of Economics, The RAND Corporation, pages 339-350.
    9. Madhav V. Rajan & Bharat Sarath, 1997. "The Value of Correlated Signals in Agencies," RAND Journal of Economics, The RAND Corporation, pages 150-167.
    10. Son Ku Kim & Yoon S. Suh, 1992. "Conditional Monitoring Policy Under Moral Hazard," Management Science, INFORMS, vol. 38(8), pages 1106-1120, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Konrad, Kai A. & Lohse, Tim & Qari, Salmai, 2014. "Deception choice and self-selection – The importance of being earnest," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 25-39.
    2. Keenan, Donald C. & Snow, Arthur, 2010. "Greater prudence and greater downside risk aversion," Journal of Economic Theory, Elsevier, vol. 145(5), pages 2018-2026, September.
    3. Michel Denuit & Louis Eeckhoudt, 2016. "Risk aversion, prudence, and asset allocation: a review and some new developments," Theory and Decision, Springer, pages 227-243.
    4. Bourgeon, Jean-Marc & Dionne, Georges, 2013. "On debt service and renegotiation when debt-holders are more strategic," Journal of Financial Intermediation, Elsevier, pages 353-372.
    5. Michel M. Denuit & Louis Eeckhoudt, 2016. "Risk aversion, prudence, and asset allocation: a review and some new developments," Theory and Decision, Springer, pages 227-243.
    6. Bernard Sinclair-Desgagné & Sandrine Spaeter, 2016. "Incentive Contracts and Downside Risk Sharing," Working Papers of BETA 2016-22, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    7. Jung, Jin Yong & Kim, Son Ku, 2015. "Information space conditions for the first-order approach in agency problems," Journal of Economic Theory, Elsevier, vol. 160(C), pages 243-279.
    8. Alonso-Paulí, Eduard & André, Francisco J., 2015. "Standardized environmental management systems as an internal management tool," Resource and Energy Economics, Elsevier, vol. 40(C), pages 85-106.
    9. Sebastian Ebert & Daniel Wiesen, 2011. "Testing for Prudence and Skewness Seeking," Management Science, INFORMS, pages 1334-1349.
    10. repec:eee:ecolet:v:157:y:2017:i:c:p:14-16 is not listed on IDEAS
    11. Marie-Cécile Fagart & Claude Fluet, 2009. "Liability insurance under the negligence rule," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 486-508.
    12. Denuit, Michel & Rey, Béatrice, 2010. "Prudence, temperance, edginess, and risk apportionment as decreasing sensitivity to detrimental changes," Mathematical Social Sciences, Elsevier, vol. 60(2), pages 137-143, September.
    13. Michel M. Denuit & Louis Eeckhoudt, 2016. "Risk aversion, prudence, and asset allocation: a review and some new developments," Theory and Decision, Springer, pages 227-243.
    14. Lohse, Tim & Konrad, Kai A. & Qari, Salmai, 2014. "Deception Choice and Audit Design - The Importance of Being Earnest," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100577, Verein für Socialpolitik / German Economic Association.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:53:y:2007:i:9:p:1501-1509. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc). General contact details of provider: http://edirc.repec.org/data/inforea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.