Too Few Cooks Spoil The Broth
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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|Date of creation:||17 Sep 2004|
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- Strausz, R.G., 1995.
"Delegation of Monitoring in a Principal-Agent Relationship,"
1995-60, Tilburg University, Center for Economic Research.
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Discussion Papers in Economics at the University of Washington
91-01, Department of Economics at the University of Washington.
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Norway; Department of Economics, University of Bergen
179, Department of Economics, University of Bergen.
- Olsen, Trond E & Torsvik, Gaute, 1998. "Collusion and Renegotiation in Hierarchies: A Case of Beneficial Corruption," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 413-38, May.
- 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.
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