IDEAS home Printed from https://ideas.repec.org/a/rje/randje/v20y1989iwinterp637-645.html
   My bibliography  Save this article

Efficiency in Hierarchies: Implementing the First-Best Solution by Sequential Actions

Author

Listed:
  • Anindya Banerjee
  • Alan Beggs

Abstract

A model of a firm with one principal and two agents is considered. The actions of the agents are not observed by the principal; hence there is moral hazard. It is shown that when the agents act sequentially -- that is, agent 2 takes his action conditional upon agent 1's choice -- the first-best actions can be implemented by a suitable choice of the incentive schemes given to the two agents. The result relies both on the sequential nature of the game and on the particular specification of the effect that the agents' actions have on output. Several extensions and applications of the framework are suggested. In particular, it is shown that the analysis generalizes to the case of more than two agents.

Suggested Citation

  • Anindya Banerjee & Alan Beggs, 1989. "Efficiency in Hierarchies: Implementing the First-Best Solution by Sequential Actions," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 637-645, Winter.
    • Handle: RePEc:rje:randje:v:20:y:1989:i:winter:p:637-645
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0741-6261%28198924%2920%3A4%3C637%3AEIHITF%3E2.0.CO%3B2-A&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pogach, Jonathan, 2018. "Short-termism of executive compensation," Journal of Economic Behavior & Organization, Elsevier, vol. 148(C), pages 150-170.
    2. Rosenkranz, Stephanie & Schmitz, Patrick W., 2001. "Vertikale Unternehmenskooperationen," MPRA Paper 6930, University Library of Munich, Germany.
    3. Lülfesmann, Christoph, 2001. "Limited Liability and Option Contracts in Models with Sequential Investments," Bonn Econ Discussion Papers 27/2001, University of Bonn, Bonn Graduate School of Economics (BGSE).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rje:randje:v:20:y:1989:i:winter:p:637-645. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.rje.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.