Moral Hazard in Hierarchies and Soft Information

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dc.contributor.author ANGELUCCI, Charles
dc.contributor.author RUSSO, Antonio
dc.date.accessioned 2012-11-06T13:03:56Z
dc.date.available 2012-11-06T13:03:56Z
dc.date.issued 2012
dc.identifier.issn 1028-3625
dc.identifier.uri http://hdl.handle.net/1814/24298
dc.description.abstract We investigate the scope for supervisory activities in organizations in which information is non-verifiable (i.e. soft) 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. The supervisor is instead useless if asked to verify the agent‘s action only once the latter is completed. 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 soft, the supervisor should be employed as a monitor rather than as an auditor. en
dc.language.iso en en
dc.relation.ispartofseries EUI RSCAS en
dc.relation.ispartofseries 2012/59 en
dc.subject Collusion en
dc.subject Extortion en
dc.subject Delegation en
dc.subject Mechanism design en
dc.subject D82 en
dc.subject D86 en
dc.subject L23 en
dc.title Moral Hazard in Hierarchies and Soft Information en
dc.type Working Paper en


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