Moral Hazard in Hierarchies and Soft Information

Angelucci, Charles and Russo, Antonio (2012) Moral Hazard in Hierarchies and Soft Information. TSE Working Paper, n. 12-343

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Official URL: http://tse-fr.eu/pub/26384

Abstract

We investigate the scope for supervisory activities in organizations in which
information is non-verifiable and opportunism severe. A principal-supervisor-agent
hierarchy is considered. Side-contracts between supervisor and agent may be reached
both before and after the agent has chosen his hidden action. We find that the supervisor
is useful if and only if appointed before the agent has chosen his action. We also show
that delegation of payroll authority is suboptimal. Finally, some insights concerning the
optimal design of verification activities are provided: when information is non-verifiable,
the supervisor should be employed as a monitor rather than as an auditor.

Item Type: Monograph (Working Paper)
Language: English
Date: October 2012
Uncontrolled Keywords: collusion, extortion, delegation, mechanism design
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:30
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:26384
URI: http://publications.ut-capitole.fr/id/eprint/15413

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