Optimal monitoring design

Georgiadis, George and Szentes, Balázs (2020) Optimal monitoring design. Econometrica, 88 (5). 2075 - 2107. ISSN 0012-9682

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Abstract

This paper considers a Principal–Agent model with hidden action in which the Principal can monitor the Agent by acquiring independent signals conditional on effort at a constant marginal cost. The Principal aims to implement a target effort level at minimal cost. The main result of the paper is that the optimal information-acquisition strategy is a two-threshold policy and, consequently, the equilibrium contract specifies two possible wages for the Agent. This result provides a rationale for the frequently observed single-bonus wage contracts.

Item Type:	Article
Official URL:	https://onlinelibrary.wiley.com/journal/14680262
Additional Information:	© 2020 The Econometric Society
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory
Date Deposited:	16 Apr 2020 10:12
Last Modified:	12 Dec 2024 02:07
URI:	http://eprints.lse.ac.uk/id/eprint/104062

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