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Incentives in Common Agency

  • Bernard Sinclair-Desgagné

This paper considers situations where an agent must allocate his nonobservable effort among several tasks and where several principals hold diverging viewpoints on what the best allocation should be. Economic theory currently sees each of these features as major obstacles to raising the strength of an agent s incentives. This paper proposes a simple scheme - based on contingent monitoring - that can nevertheless mitigate both of these obstacles simultaneously. Under this scheme, if the agent s absolute risk aversion decreases fast enough with respect to wealth, then the principals would coordinate their respective incentive provision so that the agent would also see his various tasks as complementary (instead of substitute) income-enhancing activities. Furthermore, coordination could be achieved in a somewhat liberal or decentralized way, in the sense that some principals would need to control only the tasks they have assigned to the agent. Potential applications to corporate compliance, the organization of government, and the management of innovation are briefly discussed. Nous étudions les situations où (1) un agent doit distribuer ses efforts (qui ne peuvent être observés par des tiers) sur différentes tâches et où (2) plusieurs parties prenantes ont des points de vue divergents quant à la distribution la plus souhaitable. La théorie économique prédit actuellement que chacun de ces ingrédients la présence de tâches multiples et la concurrence entre parties prenantes -suffit à lui seul à abaisser considérablement la puissance des incitations. Ce papier propose néanmoins un remède simple, via l utilisation d audits contingents. Le mécanisme proposé rendrait en effet les tâches complémentaires du point de vue de l agent ; en même temps, les parties prenantes parviendraient à se coordonner pour le mettre en oeuvre, à condition que l aversion au risque de l agent décroisse suffisamment vite avec l augmentation de sa richesse. Cette coordination pourrait par ailleurs se réaliser d une manière «libérale», en ce sens que certaines parties prenantes n auraient besoin de contrôler que les tâches les intéressant directement. Certaines utilisations possibles du mécanisme pour les régimes de conformité des entreprises, l organisation des gouvernements, et le management de l innovation sont brièvement esquissées., nous trouvons des changements dans la dynamique et dans la mémoire longue de la volatilité.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2001s-66.

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Length: 35 pages
Date of creation: 01 Dec 2001
Date of revision:
Handle: RePEc:cir:cirwor:2001s-66
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  1. John M. Maheu & Thomas H. McCurdy, 2002. "Nonlinear Features of Realized FX Volatility," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 668-681, November.
  2. Bernheim, B Douglas & Whinston, Michael D, 1986. "Common Agency," Econometrica, Econometric Society, vol. 54(4), pages 923-42, July.
  3. Nathalie de Marcellis-Warin & Erwann Michel-Kerjan, 2001. "The Public-Private Sector Risk-Sharing in the French Insurance "Cat. Nat. System"""," CIRANO Working Papers 2001s-60, CIRANO.
  4. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  5. Christoffersen, Peter & Ghysels, Eric & Swanson, Norman R., 2002. "Let's get "real" about using economic data," Journal of Empirical Finance, Elsevier, vol. 9(3), pages 343-360, August.
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