Seminar in Contracts and Governance (No.3)

Spearker: Liang Dai(SJTU)

Topic:  Optimal Incentive Schemes in Bureaucratic Systems: A Model of Dynamic Contracting with Flexible Monitoring

Abstract:We study the joint design of the optimal monitoring and compensation schemes for officers in a bureaucratic system in a dynamic contracting framework. The designer ("principal") can flexibly allocate his limited monitoring capacity between seeking evidence that confirms and that contradicts whether the representative officer ("agent") exerts effort, as the basis for reward or punishment. Such flexibility allows interesting interaction between the design of compensation scheme and that of monitoring scheme, which is practically relevant but rarely studied in the literature. When the agent's continuation value is low, the principal seeks only confirmatory evidence. When the agent's continuation value exceeds a threshold, the principal switches to seeking mainly contradictory evidence. Importantly, the agent's effort is perpetuated if and only if the agent is sufficiently productive and the principal has enough flexibility in allocating monitoring capacity.

Location:  viz Zoom; Room 318

Meeting Time: Oct. 29th, 2020, 8:30-9:30am CST;  Oct. 28th, 2020, 8:30-9:30pm EST