Abstract ABSTRACT: A class of agency problems is analyzed in which a principal, responsible for production decisions, delegates responsibility for gathering information germane to such decisions to an agent. At issue is the value of sample outcomes and other signals in improving the efficiency of contracts offered by the principal in resolving the moral hazard that arises from the unobservability of the agent's effort. It is Shown that sample outcomes are useful in providing appropriate incentives, as well as in conditioning production decisions. Ex post observability of either the state of nature or the payoff from production is also shown to be valuable for incentive purposes in all but highly specialized and less interesting situations. Among the classes of agents to which these findings might apply are market researchers, political pollsters, census takers, geological surveyors, research scientists, quality inspectors, traffic monitors, talent scouts, and corporate auditors.
Conroy et al. (Thu,) studied this question.
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