Too few cooks spoil the broth

Marisa Ratto and Wendelin Schnedler

The Centre for Market and Public Organisation from The Centre for Market and Public Organisation, University of Bristol, UK

Abstract: We consider a principal-agent relationship in which two tasks need to be carried out. Each task involves a decision. The principal can neither contract on the two decisions nor on the benefit which she receives from them but only on a signal, which simultaneously reflects both. We show that the efficient choice cannot be achieved if the principal employs a single agent. If, however, the principal employs a second agent, she can set a payment scheme such that the efficient choice can be implemented. We also examine when this implementation is vulnerable to collusion.

Keywords: hidden action; moral hazard; optimal contract; job design; asymmetric information (search for similar items in EconPapers)
JEL-codes: D82 M52 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2003-09
New Economics Papers: this item is included in nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Too Few Cooks Spoil The Broth (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:bri:cmpowp:03/090

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