Arm's Length Relationships

Crémer, Jacques

doi:10.2307/2118440

Cited by 366 publications

(228 citation statements)

References 7 publications

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“…because this weakens career concerns incentives (Dewatripont et al 1999a, Koch andPeyrache 2008a), undermines the credibility of disciplining actions (Cremer 1995), induces conformist behavior (Prat 2005), or strengthens the ratchet effect in contracting (Meyer, Olsen, and Torsvik 1996).…”

Section: Related Literaturementioning

confidence: 99%

Coordination under the Shadow of Career Concerns

Koch

Morgenstern

2010

The B.E. Journal of Theoretical Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Coordination under the Shadow of Career ConcernsAlexander K. Koch Albrecht Morgenstern The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. To innovate, employees need to develop novel ideas and coordinate with each other to turn these ideas into better products and services. Work outcomes provide signals about employees' abilities to the labor market, and therefore career concerns arise. These can both be 'good' (enhancing incentives for effort in developing ideas) and 'bad' (preventing voluntary coordination). Our model shows how the firm designs its explicit incentive system and organizes work processes to take these conflicting forces into account. The comparative statics results suggest a link between the increased use of teams and recent changes in labor market returns to skills.JEL Classification: D86, J30, L14, L20, M12, O30

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Section: Related Literaturementioning

confidence: 99%

Coordination under the Shadow of Career Concerns

Koch

Morgenstern

2010

The B.E. Journal of Theoretical Economics

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“…This information is common knowledge to all actors in the economy. 12 Each entrepreneur chooses an action from a i 2 fG; Bg that corresponds to investing in a good or in a bad project in each period. The investment choice determines in turn the probability that a …rm defaults.…”

Section: Detailed Assumptions 221 Entrepreneursmentioning

confidence: 99%

“…For example, Cremer (1995) and Dewatripont and Maskin (1995) argue that in a principal-agent problems, a credible commitment of a principal not to acquire information ex ante about the agent may strengthen incentives and overwhelm the gains from better information. 6 Cowen and Glazer (1996) and Dubey and Wu (2001) show that a principal might bene…t from having a less accurate picture of agents.…”

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confidence: 99%

Random monitoring in financing relationships

Sami

2009

The Quarterly Review of Economics and Finance

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This paper examines a …nancier's optimal monitoring intensity in a multiperiod …nancing relationship. We identify conditions under which the …nancier should sometimes misidentify the quality of an entrepreneur. Such an imperfect evaluation technology a¤ects action choices by bad entrepreneurs. We …rst characterize the optimal monitoring intensity and show that it is one in which the investor monitors entrepreneurs randomly. Random monitoring in the …rst stage of a relationship induces bad entrepreneurs to reveal their intrinsic types. Second, because random monitoring reduces the share of bad entrepreneurs in the subsequent periods, we show that the …nancier can therefore realize substantial gains.

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“…Several papers employ an incomplete contracting approach to show that incremental post-decision information may aggravate commitment problems (e.g. Cremer, 1995;Arya et al, 2000). Post-decision information typically enables a principal ex post, to extract a higher surplus from the agent than without the information.…”

Section: Motivationmentioning

confidence: 99%

Information management with specific investments and cost-based transfer prices

Hinss

Kunz

Pfeiffer

2005

European Accounting Review

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We analyse information flows in a profit-centre organisation with internal trade between two risk-neutral divisions. Prior to production, the divisions make unverifiable investments in intrafirm synergies. After investments are made, the selling division announces a cost-based transfer price which includes a mark-up on variable costs. The buying division then decides what quantity to purchase at that unit cost. From the head office's perspective, the key issues are to influence both, divisional investments and the seller's manipulation of the mark-up. To do so, the head office can fund a pre-decision information system bef ore divisional investments are made. The system produces forward-looking information that can be used to improve the divisions' investments decisions, but which cannot be used in evaluating their performance. Our analytical framework allows us to identify cost and revenue structures for which pre-decision information either supports or destroys intrafirm synergies by motivating or discouraging divisional investments, thereby resulting in an increase in, decrease in, or in no impact whatsoever on, firm profit. Among our most interesting findings is the counterintuitive result that pre-decision information can undermine the incentives of risk-neutral agents to invest specifically. Our results add to earlier agency models that found different, albeit equally dysfunctional effects of pre-decision information. Contrary to these studies, our findings are not driven by either risk aversion or rent extraction.

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Arm's Length Relationships

Cited by 366 publications

References 7 publications

Coordination under the Shadow of Career Concerns

Coordination under the Shadow of Career Concerns

Random monitoring in financing relationships

Information management with specific investments and cost-based transfer prices

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