Optimal incentive contract with endogenous monitoring technology

• 成果类型: Article
• 署名作者: Li, Anqi; Yang, Ming
• 署名单位: Washington University (WUSTL); Duke University
• 刊物名称: THEORETICAL ECONOMICS
• ISSN/ISSBN: 1933-6837
• DOI: 10.3982/TE3130
• 发表日期: 2020-07-01
• 页码: 1135-1173
• 关键词: Incentive contract; endogenous monitoring technology

摘要

Recent technology advances have enabled firms to flexibly process and analyze sophisticated employee performance data at a reduced and yet significant cost. We develop a theory of optimal incentive contracting where the monitoring technology that governs the above procedure is part of the designer's strategic planning. In otherwise standard principal-agent models with moral hazard, we allow the principal to partition agents' performance data into any finite categories, and to pay for the amount of information the output signal carries. Through analysis of the trade-off between giving incentives to agents and saving the monitoring cost, we obtain characterizations of optimal monitoring technologies such as information aggregation, strict monotone likelihood ratio property, likelihood ratio-convex performance classification, group evaluation in response to rising monitoring costs, and assessing multiple task performances according to agents' endogenous tendencies to shirk. We examine implications of these results for workforce management and firms' internal organizations.