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Time constraints and the opportunity costs of oversight

Joshua A Strayhorn, Clifford J Carrubba and Micheal W Giles
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Joshua A Strayhorn: University of Colorado at Boulder, Boulder, CO, USA

Journal of Theoretical Politics, 2016, vol. 28, issue 3, 431-460

Abstract: In a principal–agent relationship, how should principals budget time for oversight when oversight activity is not instantaneous? We develop a formal model of resource allocation by a principal monitoring multiple agents, where the principal faces a dynamic budgeting problem. Our model reveals a tension between the value of holding resources in reserve to maintain the threat of an audit and the direct policy gains of monitoring activity. We show that as the frequency of principal–agent conflict increases, there are some conditions under which the most effective strategy for a principal is to allocate less and less of their total time to monitoring. The model has important implications for the empirical analysis of a monitoring setting where a principal oversees multiple agents.

Keywords: Compliance; monitoring; oversight; principal-agent relationships; time constraints (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:sae:jothpo:v:28:y:2016:i:3:p:431-460