Monitoring a Common Agent

38 Pages Posted: 7 May 2003

See all articles by Fahad Khalil

Fahad Khalil

University of Washington - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI); CESifo (Center for Economic Studies and Ifo Institute)

Bruno Parigi

Università degli Studi di Padova

Date Written: March 18, 2003

Abstract

We study the problem of multiple financiers who want to extract income from a privately informed agent and design their financial contracts non-cooperatively. Our analysis reveals that the degree of coordination between financiers has strong implications for the shapes of financial contracts. Equity like contracts and excessive monitoring emerge when principals are able to delegate monitoring or verify each others monitoring efforts. When this is not possible, free riding in monitoring weakens the incentive to monitor high profit levels, so that flat payments, debt-like contracts and very low levels of monitoring appear.

Keywords: monitoring, common agency, costly state verification

JEL Classification: D8, G2, G3

Suggested Citation

Khalil, Fahad and Martimort, David and Parigi, Bruno, Monitoring a Common Agent (March 18, 2003). Available at SSRN: https://ssrn.com/abstract=395505 or http://dx.doi.org/10.2139/ssrn.395505

Fahad Khalil (Contact Author)

University of Washington - Department of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France
+33 5 6112 8614 (Phone)
+33 5 6112 8637 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Bruno Parigi

Università degli Studi di Padova ( email )

Via 8 Febbraio, 2
Padova, Vicenza 35122
Italy

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