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.

Photo of Balázs Szentes.

Balázs Szentes.

Abstract

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.

Read the full paper here [pdf]

Host: Bård Harstad

Published June 29, 2018 3:24 PM - Last modified Jan. 17, 2019 1:16 PM