Optimal Monitoring Design

Speaker
Balasz Szentes
Date
08/04/2019 - 12:30 - 11:10Add To Calendar 2019-04-08 11:10:00 2019-04-08 12:30:00 Optimal Monitoring Design Joint with George Georgiadis.  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. Link to paper: http://personal.lse.ac.uk/szentes/docs/monitoring.pdf building 504, seminar room 011. אוניברסיטת בר-אילן - Department of Economics Economics.Dept@mail.biu.ac.il Asia/Jerusalem public
Place
building 504, seminar room 011.
Affiliation
London School of Economics
Abstract

Joint with George Georgiadis.

 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.

Link to paper: http://personal.lse.ac.uk/szentes/docs/monitoring.pdf

Last Updated Date : 02/04/2019