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Too few cooks spoil the broth

  • Marisa Ratto
  • Wendelin Schnedler

    ()

We consider a principal-agent relationship in which two tasks need to be carried out. Each task involves a decision. The principal can neither contract on the two decisions nor on the benefit which she receives from them but only on a signal, which simultaneously reflects both. We show that the efficient choice cannot be achieved if the principal employs a single agent. If, however, the principal employs a second agent, she can set a payment scheme such that the efficient choice can be implemented. We also examine when this implementation is vulnerable to collusion.

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File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp90.pdf
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Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 03/090.

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Length: 17 pages
Date of creation: Sep 2003
Date of revision:
Handle: RePEc:bri:cmpowp:03/090
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  1. Olsen, T.E. & Torsvik, G., 1998. "Collusion and Renegotiation in Hierarchies: A Case of Beneficial Corruption," Norway; Department of Economics, University of Bergen 179, Department of Economics, University of Bergen.
  2. Susan Athey & John Roberts, 2001. "Organizational Design: Decision Rights and Incentive Contracts," American Economic Review, American Economic Association, vol. 91(2), pages 200-205, May.
  3. Kofman, F. & Lawarree, J., 1990. "Collusion in Hierarchical Agency," Working Papers 91-01, University of Washington, Department of Economics.
  4. Strausz, R.G., 1995. "Delegation of Monitoring in a Principal-Agent Relationship," Discussion Paper 1995-60, Tilburg University, Center for Economic Research.
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