Ranking agencies under moral hazard

Robbins, Edward Henry; Sarath, Bharat

doi:10.1007/s001990050181

Cited by 11 publications

(9 citation statements)

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“…Using the approach by Robbins and Sarath (1998), who define the economic value of an information system as (roughly) the expected surplus accruing to the principal, I can show that the two criteria are equivalent in this paper's context. The desirable implication of the result is that the principal would choose the same information structure for control purposes as he would choose to maximize expected profit.…”

Section: Introductionmentioning

confidence: 93%

“…It is not hard to imagine that the least costly information system need not be the one that yields the highest economic value to the principal. Robbins and Sarath (1998) define the economic value of an information system as the difference between the expected gross profit to the principal and expected compensation costs given all parameters are chosen optimally. A sufficient condition for information system I 1 having a higher economic value than I 2 independent of the context (e.g.…”

Section: Economic Value Of Information Systemsmentioning

confidence: 99%

“…The model of this paper offers an alternative or supplementary explanation absent any career concerns: the relative importance of qualification and its ability enhancing potential can account for higher explicit incentives of experienced CEOs. It also contributes to research on information systems (Kim, 1995;Demougin and Fluet, 2001) as it relates costs of information systems to agents' learning potential in a dynamic context.The determination of an optimal information system under the criteria cost minimization and value maximization, respectively, seldom leads to identical choices (Robbins and Sarath, 1998). Using the approach by Robbins and Sarath (1998), who define the economic value of an information system as (roughly) the expected surplus accruing to the principal, I can show that the two criteria are equivalent in this paper's context.…”

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confidence: 97%

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Managerial expertise, learning potential and dynamic incentives: get more for less?

Lukas

2007

Manage Decis Econ

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In this paper the impact of ability and learning potential on incentive contracts is analyzed. A central feature of the model is that the true ability will not be revealed. The learning potential of an agent is modeled as the magnitude of impact on the agent's expected ability that learning-by-doing has in a given task. Absent a managerial labor market, depending on an agent's learning potential, a monotone or non-monotone pay structure may be optimal. The second important result is that using agents' ability distributions as inputs to information systems, higher learning potentials lead to less costly information systems, i.e. actions can be implemented at lower costs. Additionally, it is proven that the criteria cost minimization and value maximization are equivalent in the model's context. Copyright © 2007 John Wiley & Sons, Ltd.

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Section: Introductionmentioning

confidence: 93%

Section: Economic Value Of Information Systemsmentioning

confidence: 99%

mentioning

confidence: 97%

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Managerial expertise, learning potential and dynamic incentives: get more for less?

Lukas

2007

Manage Decis Econ

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“…While the role of a priori distributions has been analysed for the hidden action model (Robbins and Sarath 1998), a similar task has not yet been accomplished for the hidden information model. This note fills the gap by studying how a priori distributions affect three important variables of the hidden information model: expected profit accrueing to the principal, work loads assigned to and informational rents enjoyed by workers of a given productivity.…”

Section: Introductionmentioning

confidence: 99%

The virtue of being underestimated: a note on discriminatory contracts in hidden information models

Schnedler¹

2002

Economics Letters

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by the Deutsche Post AG. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor markets, (2) internationalization of labor markets and European integration, (3) the welfare state and labor markets, (4) labor markets in transition, (5) the future of work, (6) project evaluation and (7) general labor economics. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A standard hidden information model is considered to study the influence of the a priori productivity distribution on the optimal contract. A priori more productive (hazard rate dominant) agents work less, enjoy lower rents, but generate a higher expected surplus.JEL Classification: D82, J71

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“…(This condition is also needed to guarantee that the principal pays a higher wage if the agent produces a higher output.) Robbins and Sarath (1998) build upon such ideas to show in a setting with a risk‐averse agent that the principal may not always want to choose from among two output systems the one that maximizes output. The reason is that the system which creates lower output may be the more informative one and, hence, have lower implementation costs.…”

mentioning

confidence: 99%

Job Assignments under Moral Hazard: The Peter Principle Revisited

Koch¹,

Nafziger²

2012

Economics Manag Strategy

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit company supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. The Peter Principle captures two stylized facts about hierarchies: first, promotions often place employees into jobs for which they are less well suited than for that previously held. Second, demotions are extremely rare. Why do organizations not correct 'wrong' promotion decision? This paper shows in a complete contracting setting that a simple trade-off between incentive provision and efficient job assignment may make it optimal to promote some employees to a job at which they produce less than they would at the previous level.JEL Classification: D82, J31, J33, M12

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Ranking agencies under moral hazard

Cited by 11 publications

References 11 publications

Managerial expertise, learning potential and dynamic incentives: get more for less?

Managerial expertise, learning potential and dynamic incentives: get more for less?

The virtue of being underestimated: a note on discriminatory contracts in hidden information models

Job Assignments under Moral Hazard: The Peter Principle Revisited

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