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Supervision in Firms

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Abstract

To control, evaluate, and motivate their agents, firms employ supervisors. As shown by empirical investigations, biased evaluation by supervisors linked to collusion is a persistent feature of firms. This paper studies how deceptive supervision affects agency relationships. We consider a three-level firm where a supervisor is in charge of producing a verifiable report on an agent's output. Depending on the output he has observed, the supervisor may either collude with the agent or with the principal, and make an uniformative report. We show that the proliferation of collusive activities in firms: modifies the configuration of the optimal preventive policy, may increase the expected cost of preventing each type collusion, is beneficial to the supervisor and detrimental to the agent, and is not always harmful

Suggested Citation

  • Kouroche Vafaï, 2012. "Supervision in Firms," Documents de travail du Centre d'Economie de la Sorbonne 12084, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  • Handle: RePEc:mse:cesdoc:12084
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    File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2012/12084.pdf
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    References listed on IDEAS

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    1. Arup Bose & Debashis Pal & David E. M. Sappington, 2010. "Equal Pay for Unequal Work: Limiting Sabotage in Teams," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(1), pages 25-53, March.
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    4. Vafai, Kouroche, 2002. "Preventing abuse of authority in hierarchies," International Journal of Industrial Organization, Elsevier, vol. 20(8), pages 1143-1166, October.
    5. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1993. "Why Is Rent-Seeking So Costly to Growth?," American Economic Review, American Economic Association, vol. 83(2), pages 409-414, May.
    6. N/A, 1974. "Appraisal," National Institute Economic Review, National Institute of Economic and Social Research, vol. 67(1), pages 3-7, February.
    7. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
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    More about this item

    Keywords

    Firm; group decision; control; biased supervision;

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General

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