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Full-Text Articles in Economic Theory
Optimal Task Assignments, Felipe Balmaceda Assoc Prof.
Optimal Task Assignments, Felipe Balmaceda Assoc Prof.
Felipe Balmaceda
This paper studies optimal task assignments in a risk neutral principal-agent model in which agents are compensated according to an aggregated performance measure. The main trade-off involved is one in which specialization allows the implementation of any possible effort profile, while multitasking constraint the set of implementable effort profiles. Yet, the implementation of any effort profile in this set is less expensive than that under specialization. The principal prefers multitasking to specialization except when tasks are complements and the output after success is small enough so that it is not second-best optimal to implement high effort in each task. This …
The Price Of Unobservability: Moral Hazard And Limited Liability, Felipe Balmaceda Assoc Prof.
The Price Of Unobservability: Moral Hazard And Limited Liability, Felipe Balmaceda Assoc Prof.
Felipe Balmaceda
This article studies a principal-agent problem with discrete outcome and effort space. The principal and the agent are risk neutral and the latter is subject to limited liability. For a given monitoring technology, we consider the maximum possible ratio between the first best social welfare to the social welfare arising from the principal's optimal pay-for-performance contract (the price of unobservability). Our main results provide tight bounds for this price. Key parameters to these bounds are number of possible efforts, the likelihood ratio evaluated at the highest outcome, and the ratio between costs of the highest and the lowest efforts. The …