Balázs Szentes, London School of Economics
Department seminar. Balázs Szentes is a Professor at the London School of Economics. He will present a paper entitled "Optimal Monitoring Design" co-authored by George Georgiadis.
This paper considers a Principal–Agent model with hidden action in which the Principal can monitor the Agent by acquiring independent signals conditional on eﬀort at a constant marginal cost. The Principal aims to implement a target eﬀort level at minimal cost. The main result of the paper is that the optimal information-acquisition strategy is a two-threshold policy and, consequently, the equilibrium contract speciﬁes two possible wages for the Agent. This result provides a rationale for the frequently observed single-bonus wage contracts.
Host: Bård Harstad