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Optimal monitoring under non-commitment

  • It is a well known result in the literature of principal-agent relationships that if the principal has the possibility to monitor the agent’s action at some cost, his monitoring probability is a decreasing function in the level of outcome. Moreover, the principal will reward the agent, if he is found to have complied with his interests. The purpose of this article is to show that these results depend crucially on the assumption that the principal can commit to his monitoring device at the time of contracting. In fact, we show that in a situation in which the principal is not able to commit to his investment in his monitoring technology, (1) the principal’s investigation intensity is increasing in the level of outcome and, (2) the agent’s reward is lower in the case investigation reveals the agent’s action than it is in the case in which investigation is uninformative.

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Metadaten
Author:Peter-J. Jost
URN:urn:nbn:de:hbz:992-opus4-6896
URL:https://www.researchgate.net/publication/255998524_Optimal_Monitoring_under_Non-Commitment
Publisher:WHU - Otto Beisheim School of Management
Place of publication:Vallendar
Document Type:Working Paper
Language:English
Date of Publication (online):2008/01/01
Release Date:2018/07/03
Tag:Kontrolle; Nichtkonformität
Monitoring; Non-compliance
Page Number:20
Institutes:WHU Management Group / Chair of Organization Theory
Licence (German):Copyright for this publication