SFB 303 Discussion Paper No. A - 576
Author: Will, Heide C. U.
Title: External vs Internal Monitors:
The Role of Restructuring Consequences and Information Technologies
Abstract: This paper analyses the relative efficiency of internal and external
monitors. It confirms the intuition that, if the principal and her employees
share aligned interests, internal monitoring is superior to external monitoring;
vice versa if interests diverge. This result is not robust for two alternative
information technologies considered. If monitoring effort affects the frequency
instead of the accuracy of produced signals, the optimal monitoring mode depends
on the contingency policy that is adopted in case monitoring fails. If, by contrast,
the obtained signals are nonverifiable, then internal monitoring is weakly dominant.
Keywords: contracts, externalities, interest alignment, monitoring
JEL-Classification-Number: D23, D8
Creation-Date: July 1998
URL: ../1998/a/bonnsfa576.pdf"
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