ISBN: 3790801739
TITLE: The Value of Signals in Hidden Action Models
AUTHOR: Schnedler, W.
TOC:

1 Introduction 1
2 Effort Misallocation and the Value of Signals 7
2.1 Problems of Non-contractibility 9
2.1.1 Different Types of Non-contractibility 9
2.1.2 Mechanisms to Enforce Non-contractible Actions 12
2.1.3 Optimal Incentives in the Single Effort Model 17
2.1.4 Misallocation in the Multiple Effort Model 22
2.2 Decomposing Agency Costs 24
2.2.1 Agency Costs 25
2.2.2 Feasibility and Uncertainty Costs 29
2.2.3 Identifying Misallocation Costs 33
2.2.4 The Value of Signals 42
2.2.5 Alternative Measures of Misallocation 44
2.3 Relationship between Misallocation and Uncertainty 53
2.3.1 Uncertainty-induced Misallocation 53
2.3.2 Misallocation Without Uncertainty 58
2.3.3 Bias and Uncertainty in Statistics 62
2.4 Summary 64
3 Firm Performance Measures 65
3.1 Multiple Agents and Free-Riding 65
3.1.1 Principal as Budget Breaker 66
3.1.2 When Costs Are Private Information 69
3.2 The Use of Benefit Signals 71
3.2.1 Lazear's Input versus Output Measure Model 71
3.2.2 A Misallocation-uncertainty Trade-off Model 75
3.3 Implications and Implementation 79
3.3.1 Benefits and Costs of Firm Performance Measures 80
3.3.2 Gauging the Intensity of Performance Measures 83
3.3.3 Proxies for Misallocation Costs 86
3.4 Summary 87
4 Statistical Model and Empirical Evidence 89
4.1 Empirical Studies of the Value of Signals 90
4.1.1 Do Incentives Matter? 90
4.1.2 Choice of Incentive Schemes 92
4.2 The ECMOSS Data Set 95
4.2.1 Survey Design 95
4.2.2 Performance Pay Variables 96
4.2.3 Task Descriptors 98
4.2.4 Expected Relationships Between Tasks and Pay 99
4.2.5 The Bonus-pay Censoring Problem 101
4.3 Estimation Under Multivariate Censoring 102
4.3.1 Survey of Estimation Methods 103
4.3.2 Constructing an Estimator 104
4.3.3 Application to the Bonus Pay Censoring Problem 108
4.4 Results 110
4.4.1 Task Descriptors 112
4.4.2 Control Variables 115
4.5 Summary 119
5 Conclusion 121
A Properties of the Multivariate Censoring Estimator 127
A.1 Consistency 127
A.2 Asymptotic Normality 129
A.3 Asymptotic Efficiency 133
A.4 Multivariate Censored Regression 134
B Stata Programme 137
C Tables 139
References 143
List of Figures 149
List of Tables 151
List of Symbols 153
Index 157
END
