Keywords: Information Structure, Hierarchies,
JEL-Classification: D82, D83
This paper studies
an agency framework in which a principal hires a supervisor to monitor the
agent's productive effort. We consider several monitoring technologies which
differ in the quantity (frequency) and the quality (accuracy) of the
information they deliver. We show that the frequency of monitoring is
irrelevant if the supervisor is honest or if the supervisor colludes with the
agent but monitoring evidence can only be concealed and not forged. In either
case, a first-best can be achieved if monitoring is sufficiently precise even
though unbounded punishments are not feasible. Only if monitoring evidence can
be falsified, the principal benefits
both from
the frequency and the accuracy of the supervisor's observations. The findings
therefore indicate that employee should opt for accurate rather than frequent
checks on
their employees under a wide range of circumstances.
Copyright © 2000 Anke Kessler