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| Author: | Demougin, D. Fluet, C. |
| Title: | Monitoring versus incentives |
| Journal: | European Economic Review
2001 : OCT, VOL. 45:9, p. 1741-1764 |
| Index terms: | AGENCY THEORY INCENTIVES MORAL HAZARD |
| Freeterms: | MONITORING |
| Language: | eng |
| Abstract: | This paper analyzes the trade-off between monitoring and incentives in a principal-agent relationship with moral hazard. The authors derive general results on the optimal monitoring - incentives mix for the case where both parties are risk-neutral and the agent faces a limited liability constraint. They show that the principal uses less monitoring and stronger incentives if the agent's liability limit is relaxed or if monitoring costs increase. |
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