Limited liability, the first-order approach, and the ranking of information systems in agencies

François Larmande
Additional contact information
François Larmande: EM - EMLyon Business School

Post-Print from HAL

Abstract: Kim (1995) provides a sufficient condition to rank information systems when the first-order approach is valid. The basis for the condition is the comparison of the likelihood ratio distributions. I show, first, that Kim's criterion is not necessary when the limited liability of the agent binds. I derive, in the binomial model, a less restrictive necessary and sufficient condition. This new criterion compares the likelihood ratios, but only for the high outcome. It also compares the marginal productivities of effort. In contrast, when the limited liability does not bind, I find that Kim's criterion is necessary and sufficient in the binomial model. Second, when the first-order approach is not valid, I show that Kim's criterion is no longer sufficient: the principal might be better off with a less informative (in Kim's sense) monitoring technology.

Date: 2013-02-01
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Published in Ecconomics Letters, 2013, 118 (2), pp.314-317 P

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02312972

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().