Efficiency in General Agency Models with Imperfect Public Monitoring
Washington University in Saint Louis
December 1, 2014
In T-period agency relationships between a risk-neutral principal and a risk-averse agent where signals can depend on past actions and exhibit serial correlation, near-efficiency obtains when T is large if the monitoring technology satisfies two basic properties: concentration of measure and informativeness. The tension between these conditions is used to determine the boundary at which asymptotic efficiency does and does not obtain in agency models with frequent actions. Results deepen and extend our understanding of varying efficiency results in the agency literature, quantify the value of knowing details of the monitoring technology and help solve incentive issues when the monitoring technology is highly persistent.
Number of Pages in PDF File: 27
Keywords: dynamic agency; efficiency; robust incentives
JEL Classification: D86working papers series
Date posted: July 6, 2013 ; Last revised: December 13, 2014
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