%0 Report
%9 Working Paper
%A Angelucci, Charles
%A Russo, Antonio
%B TSE Working Paper
%D 2012
%F publications:15413
%K collusion
%K extortion
%K delegation
%K mechanism design
%T Moral Hazard in Hierarchies and Soft Information
%U https://publications.ut-capitole.fr/id/eprint/15413/
%V 12-343
%X 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.