Essays on Monitoring in Teams and Hierarchical Communications

Abstract

This dissertation consists of three chapters on the contracting problem between principal and agents. The first two chapters focus on contract that involves adverse selection (and moral hazard problems) in the team framework. In chapter one, I have shown that if incentive reporting is not allowed, when agents? efforts are perfect complements, output-based contract is optimal since it avoids the potential waste under input monitoring, while both output-based or input-based contract can be optimal when agents? efforts are substitutes, and the results depend on the distribution and differences of agents? productivities. In chapter two, I review the work of McAfee and McMillan (1991) and arrive at a different conclusion, i.e., contributions monitoring is strictly better than output monitoring, by adding limited liability constraint. The third chapter analyzes a hierarchical communication problem within the firm, providing reasons to explain the co-existence of skip-level communication and open communication observed in reality.