Delegation of Monitoring in a Principal-Agent Relationship

Roland Strausz ()

No 60, Discussion Paper from Tilburg University, Center for Economic Research

Abstract: This paper studies a principal-agent relationship with moral hazard in which the principal or the supervisor can monitor the agent's hidden action by using identical monitoring technologies. The paper shows that delegation of monitoring to the supervisor is profitable because of two effects. With delegation the principal can better regulate the incentives (incentive effect) and can commit to wage structures to which she could not commit without delegation (commitment effect). As a logical step collusion is introduced and it is shown that even with the possibility of collusion delegation is an optimal strategy.

Keywords: Monitoring (search for similar items in EconPapers)
JEL-codes: L23 D82 (search for similar items in EconPapers)
Date: Written
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Related works:
Journal Article: Delegation of Monitoring in a Principal-Agent Relationship (1997)
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:kubcen:199560

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