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Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions Author info | Abstract | Publisher info | Download info | Related research | Statistics Patrick W. Schmitz () (INSEAD)
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I discuss the optimal organization of sequential agency problems with contractible control actions under limited liability. In each of two stages, a risk-neutral agent can choose an unobservable effort level. A success in the first stage makes effort in the second stage more effective. Should one agent be in control in both stages (integration), or should different agents be in charge of the two actions (separation)? Both modes of organization can be explained on the basis of incentive considerations due to moral hazard, without resorting to commitment problems or ad hoc restrictions on the class of feasible contracts. Ordering information: This article can be ordered from https://pubs3.rand.org/cgi-bin/rje/pdf.cgi .
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Article provided by The RAND Corporation in its journal RAND Journal of Economics .
Volume (Year): 36 (2005)
Issue (Month): 2 (Summer)
Pages: 318-336
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Handle: RePEc:rje:randje:v:36:y:2005:2:p:318-336Contact details of provider: Web page: http://www.rje.org
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Keywords: Organizational Behavior Transaction Costs Property Rights Organization of Production Management of Technological Innovation and R&D contract theory hidden action limited liability moral hazard Other versions of this item:
Find related papers by JEL classification: D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
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