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Private Monitoring, Collusion and the Timing of Information

Author

Listed:
  • Fahad Khalil
  • Jacques Lawarree
  • Troy J Scott

Abstract

When a principal’s monitoring information is private (non-verifiable), the agent should be concerned that the principal could misrepresent the information to reduce the agent’s wage or collect a monetary penalty. Restoring credibility may lead to an extreme waste of resources—the so-called burning of money. A more realistic and efficient outcome is feasible when the private information arrives in time to rescale the agent’s effort. Rescaling is more effective than pure monetary penalties because effort has different values to different parties while money is equally valuable to all parties. Furthermore, when rescaling is feasible, private monitoring is more efficient than public monitoring subject to collusion because non-monetary penalties are ineffective to deter collusion.
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Suggested Citation

  • Fahad Khalil & Jacques Lawarree & Troy J Scott, 2011. "Private Monitoring, Collusion and the Timing of Information," Working Papers UWEC-2011-08, University of Washington, Department of Economics.
    • Handle: RePEc:udb:wpaper:uwec-2011-08
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    Cited by:

    1. repec:elg:eechap:15325_27 is not listed on IDEAS
    2. Che, Xiaogang & Huang, Yangguang & Zhang, Le, 2021. "Supervisory efficiency and collusion in a multiple-agent hierarchy," Games and Economic Behavior, Elsevier, vol. 130(C), pages 425-442.
    3. De Chiara, Alessandro & Livio, Luca, 2017. "The threat of corruption and the optimal supervisory task," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 172-186.
    4. W. Bentley MacLeod & Victoria Valle Lara & Christian Zehnder, 2025. "Worker Empowerment and Subjective Evaluation: On Building an Effective Conflict Culture," Management Science, INFORMS, vol. 71(6), pages 4643-4668, June.
    5. Gambacorta, Leonardo & Khalil, Fahad & Parigi, Bruno, 2022. "Big Techs vs Banks," CEPR Discussion Papers 17649, C.E.P.R. Discussion Papers.
    6. W. Bentley MacLeod & Teck Yong Tan, 2016. "Optimal Contracting with Subjective Evaluation: The Effects of Timing, Malfeasance and Guile," NBER Working Papers 22156, National Bureau of Economic Research, Inc.
    7. Helmut Bester & Johannes Münster, 2016. "Subjective evaluation versus public information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 61(4), pages 723-753, April.
    8. Li Chen & Shiqing Yao & Kaijie Zhu, 2020. "Responsible Sourcing Under Supplier-Auditor Collusion," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1234-1250, November.
    9. W. Bentley MacLeod & Victoria Valle Lara & Christian Zehnder, 2020. "Worker Empowerment and Subjective Evaluation: On Building an Effective Conflict Culture," NBER Working Papers 27857, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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