Journal Article

Delegation of Monitoring in a Principal-Agent Relationship

Roland Strausz

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 64, issue 3, pages 337-357
Published in print July 1997 | ISSN: 0034-6527
Published online July 1997 | e-ISSN: 1467-937X | DOI:
Delegation of Monitoring in a Principal-Agent Relationship

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This paper studies a principal-agent relationship in which either the principal or a supervisor can monitor the agent's hidden action by the use of identical monitoring technologies. We assume that signals are private information and commitment to monitoring is not possible. We show that delegation of monitoring is profitable. With delegation the principal can better regulate incentives (incentive-effect) and commit to a broader range of wage structures (commitment-effect). We introduce collusion to find an endogenous bound on rewards and show that collusion limits the commitment-effect, but due to the incentive-effect delegation remains profitable.

Journal Article.  0 words. 

Subjects: Economics

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