Economics at your fingertips  

Monitoring innovation

Alexander Rodivilov

Games and Economic Behavior, 2022, vol. 135, issue C, 297-326

Abstract: This paper examines the benefit of monitoring an agent who works on an innovative project of uncertain quality. The agent is asked to experiment to uncover the quality of the project. The agent has the ability to manipulate the principal's beliefs about the project quality because the effort of the agent may not be observable (moral hazard), and success may not be publicly observed (hidden information). The optimal timing of monitoring trades off the benefit of alleviating the moral hazard problem during the monitoring period (static effect) and a reduction of the agent's rent in periods before monitoring (dynamic effect). If the successful realization of the innovation is observed publicly, the static effect dominates, and monitoring is most beneficial at the beginning of the relationship. If success is private, the dynamic effect may become pivotal, and monitoring may be optimal at the end of the relationship.

Keywords: Innovation; Monitoring; Moral hazard; Private learning (search for similar items in EconPapers)
JEL-codes: D83 D86 O31 O32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

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:

DOI: 10.1016/j.geb.2022.06.011

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2023-03-26
Handle: RePEc:eee:gamebe:v:135:y:2022:i:c:p:297-326