Conditional Monitoring Policy Under Moral Hazard

Son Ku Kim and Yoon S. Suh
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Son Ku Kim: Department of Economics, University of California, Los Angeles, Los Angeles, California 90024
Yoon S. Suh: Anderson Graduate School of Management, University of California, Los Angeles, Los Angeles, California 90024

Management Science, 1992, vol. 38, issue 8, 1106-1120

Abstract: This paper extends the previous research on conditional monitoring by allowing the principal to choose the level of monitoring investment and by finding the properties of an interior optimal monitoring policy which is not of a bang-bang nature. We show that, under a concave monitoring technology, the optimal monitoring investment is decreasing in the observed outcome and lower-tailed in a variety of contexts.

Keywords: accounting; information economics; agency contracts; variance investigation (search for similar items in EconPapers)
Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:38:y:1992:i:8:p:1106-1120

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