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Delegation of Monitoring in a Principal-Agent Relationship

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  • Strausz, R.G.

    (Tilburg University, Center For Economic Research)

Abstract

This paper studies a principal-agent relationship in which either the principal or a supervisor can monitor the agent's hidden action by the use of identical monitoring technologies. We assume that signals are private information and commitment to monitoring is not possible. We show that delegation of monitoring is profitable. With delegation the principal can better regulate incentives (incentive-effect) and commit to a broader range of wage structures (commitment-effect). We introduce collusion to find an endogenous bound on rewards and show that collusion limits the commitment-effect, but due to the incentive-effect delegation remains profitable.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Strausz, R.G., 1995. "Delegation of Monitoring in a Principal-Agent Relationship," Discussion Paper 1995-60, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:7b745873-4687-47ee-afc3-92d903397360
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    References listed on IDEAS

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    1. 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.
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    4. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-656, May.
    5. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
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