Monitoring Rent-Seeking Managers: Advantages of Diffuse Ownership.
This paper demonstrates that a one-owner firm tends to overmonitor its employees. Because monitoring is imperfect, and penalities imposable on detected rent-seekers are limited by the opportunity cost wage, employees have incentives to engage in rent-seeking activities that both reduce and redistribute the firm's residual. Since owner monitoring will be partly motivated by concerns over the distribution of the firm's residual, a sole owner tends to monitor beyond the level that maximizes a firm's residual. Appropriately diffuse ownership can reduce monitoring effort to efficient levels by diluting incentives for monitoring activities.
Year of publication: |
1989
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Authors: | Congleton, Roger D. |
Published in: |
Canadian Journal of Economics. - Canadian Economics Association - CEA. - Vol. 22.1989, 3, p. 662-72
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Publisher: |
Canadian Economics Association - CEA |
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