Optimal Incentive Contract with Endogenous Monitoring Technology
Recent technology advances have enabled firms to flexibly process and analyze sophisticated employee performance data at a reduced and yet significant cost. We develop a theory of optimal incentive contracting where the monitoring technology that governs the above procedure is part of the designer's strategic planning. In otherwise standard principal-agent models with moral hazard, we allow the principal to partition agents' performance data into any finite categories and to pay for the amount of information the output signal carries. Through analysis of the trade-off between giving incentives to agents and saving the monitoring cost, we obtain characterizations of optimal monitoring technologies such as information aggregation, strict MLRP, likelihood ratio-convex performance classification, group evaluation in response to rising monitoring costs, and assessing multiple task performances according to agents' endogenous tendencies to shirk. We examine the implications of these results for workforce management and firms' internal organizations.
Code (0)
등록된 구현이 없습니다.
Tasks
ManagementSimilar Papers 제목 키워드 기반
Monitoring with Rich Data
We consider moral hazard problems where a principal has access to rich monitoring data about an agent's action. Rather than focusing on optimal contracts (which are known to in general be complicated), we characterize th…
Ex-post moral hazard and manipulation-proof contracts
We examine the trade-off between the provision of incentives to exert costly effort (ex-ante moral hazard) and the incentives needed to prevent the agent from manipulating the profit observed by the principal (ex-post mo…
Moral Hazard, Dynamic Incentives, and Ambiguous Perceptions
This paper considers dynamic moral hazard settings, in which the consequences of the agent's actions are not precisely understood. In a new continuous-time moral hazard model with drift ambiguity, the agent's unobservabl…
Learning by Consuming: Optimal Pricing with Endogenous Information Provision
We study the revenue-maximizing mechanism when a buyer's value evolves endogenously because of learning-by-consuming. A seller sells one unit of a divisible good, while the buyer relies on his private, rough valuation to…
Incentive Contracts and Peer Effects in the Workplace
We analyze how firms should design wage contracts when workers collaborate in teams and effort costs depend on colleagues through a peer network. Performance-based compensation generates incentives that cascade through t…