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Imperfect Monitoring of Monitoring Agents: One Reason Why Hierarchies Can Be Superior to "Lean" Organizations

  • Kirstein, Roland

Effective monitoring requires proper incentives and detection skill. Detection skills depend on the extent of specialization in monitoring and on the number of agents to be supervised. This paper demonstrates that hierarchy and monitoring of monitors can provide the necessary incentives for the monitoring agents, which induces them to make use of their detection skill. The model draws on the theory of imperfect diagnosis and explains why hierarchies can be superior to ?lean? organizations.

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File URL: http://econstor.eu/bitstream/10419/23038/1/2003-07_monitoring.pdf
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Paper provided by Saarland University, CSLE - Center for the Study of Law and Economics in its series CSLE Discussion Paper Series with number 2003-07.

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Date of creation: 2003
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Handle: RePEc:zbw:csledp:200307
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  1. Strausz, Roland, 1999. "Efficiency in Sequential Partnerships," Journal of Economic Theory, Elsevier, vol. 85(1), pages 140-156, March.
  2. 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.
  3. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  4. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
  5. Demski, Joel S. & Sappington, David, 1984. "Optimal incentive contracts with multiple agents," Journal of Economic Theory, Elsevier, vol. 33(1), pages 152-171, June.
  6. Daniel S. Nagin & James B. Rebitzer & Seth Sanders & Lowell J. Taylor, 2002. "Monitoring, Motivation, and Management: The Determinants of Opportunistic Behavior in a Field Experiment," American Economic Review, American Economic Association, vol. 92(4), pages 850-873, September.
  7. Ronald Heiner, 1990. "Rule-governed behavior in evolution and human society," Constitutional Political Economy, Springer, vol. 1(1), pages 19-46, December.
  8. Kirstein, Roland, 2002. "The new Basle Accord, internal ratings, and the incentives of banks," International Review of Law and Economics, Elsevier, vol. 21(4), pages 393-412, May.
  9. Heiner, Ronald A, 1985. "Origin of Predictable Behavior: Further Modeling and Applications," American Economic Review, American Economic Association, vol. 75(2), pages 391-96, May.
  10. Kessler, Anke S., 2000. "On Monitoring and Collusion in Hierarchies," Journal of Economic Theory, Elsevier, vol. 91(2), pages 280-291, April.
  11. repec:cup:cbooks:9780521378598 is not listed on IDEAS
  12. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
  13. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-95, September.
  14. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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