Georgiadis, George and Szentes, Balázs (2020) Optimal monitoring design. Econometrica, 88 (5). 2075 - 2107. ISSN 0012-9682
Text (Optimal monitoring design)
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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 |
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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: | 04 Oct 2024 17:27 |
URI: | http://eprints.lse.ac.uk/id/eprint/104062 |
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