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Moral Hazard in Sequential Teams

Author

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  • Roland Strausz

    (Free University of Berlin, Department of Economics)

Abstract

This paper considers a team in which production takes place sequentially and in which agents observe the actions taken by previous agents. We show that for such teams sharing rules exist which are balanced and induce efficient production as the unique equilibrium outcome. This in contrast to team structures studied by Holmström (1982) in which agents act simultaneously. The sharing rule which induces efficient production is simple, intuitive and robust to noise, sabotage, and collusive behavior. It induces efficient production even when agents obtain imperfect information about previous actions.

Suggested Citation

  • Roland Strausz, "undated". "Moral Hazard in Sequential Teams," Papers 001, Departmental Working Papers.
    • Handle: RePEc:bef:lsbest:001
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    File URL: http://userpage.fu-berlin.de/%7Elsbester/papers/seq_dp.pdf
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    References listed on IDEAS

    as
    1. Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September.
    2. Kim C. Border & Joel Sobel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(4), pages 525-540.
    3. McAfee, R Preston & McMillan, John, 1991. "Optimal Contracts for Teams," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 561-577, August.
    4. David P. Baron & David Besanko, 1984. "Regulation, Asymmetric Information, and Auditing," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 447-470, Winter.
    5. Dilip Mookherjee, 1984. "Optimal Incentive Schemes with Many Agents," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 433-446.
    6. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    7. Ching-To Ma, 1988. "Unique Implementation of Incentive Contracts with Many Agents," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 555-572.
    8. Eric Rasmusen, 1987. "Moral Hazard in Risk-Averse Teams," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 428-435, Autumn.
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    Cited by:

    1. Yuval Emek & Michal Feldman, 2007. "Computing an Optimal Contract in Simple Technologies," Levine's Bibliography 843644000000000184, UCLA Department of Economics.
    2. Bogumił Kamiński & Maciej Łatek, 2010. "Tradeoff between Equity and Effciency in Revenue Sharing Contracts," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 2(1), pages 1-16, January.
    3. Yuval Emek & Michal Feldman, 2007. "Computing an Optimal Contract in Simple Technologies," Discussion Paper Series dp452, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.

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    More about this item

    Keywords

    Partnerships; Teams; unique implementation.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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