TY - JOUR
T1 - Monitoring innovation
AU - Rodivilov, Alexander
N1 - Publisher Copyright:
© 2022 Elsevier Inc.
PY - 2022/9
Y1 - 2022/9
N2 - This paper examines the benefit of monitoring an agent who works on an innovative project of uncertain quality. The agent is asked to experiment to uncover the quality of the project. The agent has the ability to manipulate the principal's beliefs about the project quality because the effort of the agent may not be observable (moral hazard), and success may not be publicly observed (hidden information). The optimal timing of monitoring trades off the benefit of alleviating the moral hazard problem during the monitoring period (static effect) and a reduction of the agent's rent in periods before monitoring (dynamic effect). If the successful realization of the innovation is observed publicly, the static effect dominates, and monitoring is most beneficial at the beginning of the relationship. If success is private, the dynamic effect may become pivotal, and monitoring may be optimal at the end of the relationship.
AB - This paper examines the benefit of monitoring an agent who works on an innovative project of uncertain quality. The agent is asked to experiment to uncover the quality of the project. The agent has the ability to manipulate the principal's beliefs about the project quality because the effort of the agent may not be observable (moral hazard), and success may not be publicly observed (hidden information). The optimal timing of monitoring trades off the benefit of alleviating the moral hazard problem during the monitoring period (static effect) and a reduction of the agent's rent in periods before monitoring (dynamic effect). If the successful realization of the innovation is observed publicly, the static effect dominates, and monitoring is most beneficial at the beginning of the relationship. If success is private, the dynamic effect may become pivotal, and monitoring may be optimal at the end of the relationship.
KW - Innovation
KW - Monitoring
KW - Moral hazard
KW - Private learning
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U2 - 10.1016/j.geb.2022.06.011
DO - 10.1016/j.geb.2022.06.011
M3 - Article
AN - SCOPUS:85134507293
SN - 0899-8256
VL - 135
SP - 297
EP - 326
JO - Games and Economic Behavior
JF - Games and Economic Behavior
ER -