Monitoring and competing principals: A double-edged sword
Journal of Economic Theory, 2020, vol. 189, issue C
Do monitoring technologies increase a principal's profits if she has to compete with others for an agent? While monitoring improves the risk-incentive tradeoff, it also reduces the costs for a rivaling principal to offer a more attractive contract. We show in a two-action, two-outcome model that when the derivative of the agent's risk tolerance is smaller than one, equilibrium profits are lower when monitoring is available if there is some competition. When the derivative is larger than one, equilibrium profits are higher when monitoring is available. Conversely, the agent benefits from monitoring when the competition is intense but can be hurt when it is mild.
Keywords: Competition; Monitoring; Moral hazard; Prudence; Risk tolerance (search for similar items in EconPapers)
JEL-codes: D81 D82 D86 (search for similar items in EconPapers)
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
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:189:y:2020:i:c:s0022053120300946
Access Statistics for this article
Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell
More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().