IDEAS home Printed from https://ideas.repec.org/p/gro/rugsom/07003.html
   My bibliography  Save this paper

Harmful monitoring

Author

Listed:
  • Haan, Marco A.
  • Los, Bart
  • Riyanto, Yohanes E.

    (Groningen University)

Abstract

We show that there may be circumstances in which a principal prefers not to observe the project choice of an agent that acts on her behalf. The ability of the agent is private information. Projects differ with respect to the amount of risk. If the principal can observe the project choice of the agent, the latter will use that choice as a signal. In the separating equilibrium, an agent with high ability then chooses a project that is too risky. If more difficult projects require more effort, there are two opposite effects. The shirking effect implies that the agent chooses a project that is too safe. The signaling effect implies that he chooses a project that is too risky. The net effect is ambiguous. We also discuss the implications of our model for promotion policies.

Suggested Citation

  • Haan, Marco A. & Los, Bart & Riyanto, Yohanes E., 2007. "Harmful monitoring," Research Report 07003, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    • Handle: RePEc:gro:rugsom:07003
    as

    Download full text from publisher

    File URL: http://irs.ub.rug.nl/ppn/301931496
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Colin F. Camerer, 1997. "Progress in Behavioral Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 167-188, Fall.
    2. Andrea Prat, 2005. "The Wrong Kind of Transparency," American Economic Review, American Economic Association, vol. 95(3), pages 862-877, June.
    3. Linda Babcock & George Loewenstein, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 109-126, Winter.
    4. Gibbons, Robert & Murphy, Kevin J, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 468-505, June.
    5. Marco Haan & Bart Los & Yohanes Riyanto, 2011. "Signaling strength? An analysis of decision making in The Weakest Link," Theory and Decision, Springer, vol. 71(4), pages 519-537, October.
    6. Zwiebel, Jeffrey, 1995. "Corporate Conservatism and Relative Compensation," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 1-25, February.
    7. Kanodia, C & Bushman, R & Dickhaut, J, 1989. "Escalation Errors And The Sunk Cost Effect - An Explanation Based On Reputation And Information Asymmetries," Journal of Accounting Research, Wiley Blackwell, vol. 27(1), pages 59-77.
    8. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, vol. 86(3), pages 329-348, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Marco Haan & Bart Los & Yohanes Riyanto, 2011. "Signaling strength? An analysis of decision making in The Weakest Link," Theory and Decision, Springer, vol. 71(4), pages 519-537, October.
    2. Marco A. Haan & Bart Los & Sander Onderstal & Yohanes E. Riyanto, 2010. "Punching above One's Weight: The Case against Election Campaigns," Tinbergen Institute Discussion Papers 10-056/1, Tinbergen Institute.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:dgr:rugsom:07003 is not listed on IDEAS
    2. Andrea Prat, 2005. "The Wrong Kind of Transparency," American Economic Review, American Economic Association, vol. 95(3), pages 862-877, June.
    3. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-1134, December.
    4. Daniel Ferreira & Marcelo Rezende, 2007. "Corporate strategy and information disclosure," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 164-184, March.
    5. Caruana, Guillermo, 2001. "Career concerns and contingent compensation," UC3M Working papers. Economics we014811, Universidad Carlos III de Madrid. Departamento de Economía.
    6. Anil Arya & Brian Mittendorf, 2011. "The Benefits of Aggregate Performance Metrics in the Presence of Career Concerns," Management Science, INFORMS, vol. 57(8), pages 1424-1437, August.
    7. Guillermo Caruana & Marco Celentani, 2002. "Career Concerns and Contingent Compensation," Working Papers wp2002_0205, CEMFI.
    8. Liu, Yaozhou Franklin & Sanyal, Amal, 2012. "When second opinions hurt: A model of expert advice under career concerns," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 1-16.
    9. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    10. Clarke, Jonathan & Subramanian, Ajay, 2006. "Dynamic forecasting behavior by analysts: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 80(1), pages 81-113, April.
    11. David Hirshleifer & Ivo Welch, 2002. "An Economic Approach to the Psychology of Change: Amnesia, Inertia, and Impulsiveness," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(3), pages 379-421, September.
    12. Qiang Fu & Ming Li & Xue Qiao, 2022. "On the paradox of mediocracy," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(2), pages 492-521, April.
    13. Gregory Besharov, 2004. "Second‐Best Considerations in Correcting Cognitive Biases," Southern Economic Journal, John Wiley & Sons, vol. 71(1), pages 12-20, July.
    14. Andrea Prat & Amil Dasgupta, 2004. "Career Concerns in Financial Markets," FMG Discussion Papers dp494, Financial Markets Group.
    15. Engellandt, Axel & Riphahn, Regina T., 2005. "Temporary contracts and employee effort," Labour Economics, Elsevier, vol. 12(3), pages 281-299, June.
    16. Trabert, Sebastian, 2023. "Do younger CEOs really increase firm risk? Evidence from sudden CEO deaths," Journal of Corporate Finance, Elsevier, vol. 79(C).
    17. De Cesari, Amedeo & Ozkan, Neslihan, 2015. "Executive incentives and payout policy: Empirical evidence from Europe," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 70-91.
    18. Jeanine Miklós-Thal & Hannes Ullrich, 2016. "Career Prospects and Effort Incentives: Evidence from Professional Soccer," Management Science, INFORMS, vol. 62(6), pages 1645-1667, June.
    19. Alessandro Bonatti & Johannes Horner, 2011. "Career Concerns with Coarse Information," Cowles Foundation Discussion Papers 1831, Cowles Foundation for Research in Economics, Yale University, revised Jan 2012.
    20. Frédéric Loss & Antoine Renucci, 2021. "Promotions, managerial project choice, and implementation effort," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(4), pages 799-819, November.
    21. Englmaier, Florian & Filipi, Ales & Singh, Ravi, 2010. "Incentives, reputation and the allocation of authority," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 413-427, November.
    22. Christian Korth & J. Philipp Reiß, 2014. "Vacuous Information Affects Bargaining," Group Decision and Negotiation, Springer, vol. 23(4), pages 921-936, July.

    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:gro:rugsom:07003. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Hanneke Tamling (email available below). General contact details of provider: https://edirc.repec.org/data/ferugnl.html .

    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.