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Monitoring Gains and Decentralization
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Bernd Theilen
Veröffentlicht/Copyright:
28. September 2009
This paper analyzes the delegation of contracting capacity in a moral hazard environment with sequential production in a project which involves a principal and two agents. The agent in charge of the final production can obtain soft information about the other agent's effort choice by investing in monitoring. I investigate the circumstances under which it is optimal for the principal to use a centralized organization in which she designs the contracts with both agents or to use a decentralized organization in which she contracts with only one agent, and delegates the power to contract with the other agent. It is shown that in this setting a decentralized organization can be superior to a centralized organization. This is because the principal is better off under monitoring and the incentives for an agent to invest in monitoring can be higher in a decentralized organization. The circumstances under which this is true are related to monitoring costs and the importance of each agent for production. The results explain the recent application of the design-build method in public procurement.
Published Online: 2009-9-28
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Artikel in diesem Heft
- Advances Article
- Private Information of Nonpaternalistic Altruism: Exaggeration and Reciprocation of Generosity
- Satisficing: A 'Pretty Good' Heuristic
- Optimal Auctions with Simultaneous and Costly Participation
- Temptations in General Settings
- Learning in Bayesian Games with Binary Actions
- Contracting in the Presence of Judicial Agency
- Updating Ambiguity Averse Preferences
- Competition May Reduce the Revenue in a First Price Auction with Affiliated Private Values
- Topics Article
- Incentive Schemes in Peer-to-Peer Networks
- Why (and When) are Preferences Convex? Threshold Effects and Uncertain Quality
- A Two-Step Subsidy Scheme to Overcome Network Externalities in a Dynamic Game
- Oligopolistic Certification
- Envy-Free and Efficient Minimal Rights: Recursive No-Envy
- Risk Premiums versus Waiting-Options Premiums: A Simple Numerical Example
- Inflation, Self Insurance and the Friedman Rule in Economies with Uninsurable Idiosyncratic Risks
- Advertising and Cost Reduction
- Directed Search, Rationing and Wage Dispersion
- Optimism and Bargaining Inefficiency
- Fair Depreciation: A Shapley Value Approach
- Product Variety, Scale Economies, and Environmental Taxes
- Market Competition and Lower Tier Incentives
- Vertical Differentiation, Social Networks and Compatibility Decisions
- Asymmetric Bertrand-Edgeworth Oligopoly and Mergers
- Consumer Rationing and the Cournot Outcome
- Representations and Identities for Homogeneous Technologies
- Monitoring Gains and Decentralization
- Cross-Cultural Trade and Institutional Stability
- Universal Service Obligations and Competition with Asymmetric Information
- A Duopoly Model of Political Agency with Applications to Anti-Corruption Reform
- Simple Economies with Multiple Equilibria
- A Note on Herbert Gintis' "Emergence of a Price System from Decentralized Bilateral Exchange"
- Contributions Article
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- Fluctuations in Overlapping Generations Economies
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- The Efficiency of Observability and Mutual Linkage
- A Positive Theory of Income Taxation
- Supply Theory sans Profit Maximization
- The Dynamics of Collective Reputation
- Identifying Community Structures from Network Data via Maximum Likelihood Methods
- Income Distribution, Market Structure, and Individual Welfare
- Free Riding in Combinatorial First-Price Sealed-Bid Auctions
- Geometric Asymptotic Approximation of Value Functions
- Sequential Auctions with Multi-Unit Demands
