Research Seminar by Andrei Barbos (University of South Florida)

On Thursday,  May 12 at 4.40 pm , room 3211 (Shabolovka str. 26) ICEF held the Research Seminar.
Speaker:  Andrei Barbos (University of South Florida)
Theme:  "Optimal Contracts with Random Monitoring"

Abstract: We study an optimal contract problem under moral hazard in a principal-agent framework where contracts are implemented through random monitoring. This is a monitoring instrument which reveals the precise action taken by the agent with some nondegenerate probability, and otherwise reveals no information. The agent’s cost of performing the action depends on a random state of nature. This state is private information to the agent, but he can non-verifiably communicate it, allowing the contract to specify wages as a function of the agent’s message. We show that the optimal contract partitions the set of types in three regions. The most efficient types exert effort and receive a reward when audited. Moderately efficient types exert effort but are paid the same wage with an audit as without. The least efficient types do not exert effort. More intense monitoring increases the value of a contract when the agent is risk averse.

 

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