Credibility and Monitoring: Outsourcing as a Commitment Device

Benjamin Bental, Bruno Deffains, Dominique Demougin

Research output: Contribution to journalArticlepeer-review


We analyze an environment plagued by double moral hazard where the agent's effort level and the principal's precision in monitoring are not contractible. In such an environment, the principal tends to over-monitor thereby inducing low effort. To ease the latter problem, the principal may choose to increase monitoring costs by outsourcing the activity. As a result equilibrium monitoring is reduced and incentives become more powerful. This choice is particularly likely when the worker's effort is an important factor in determining output.

Original languageEnglish
Pages (from-to)31-52
Number of pages22
JournalJournal of Economics and Management Strategy
Issue number1
StatePublished - Mar 2012

ASJC Scopus subject areas

  • General Business, Management and Accounting
  • Economics and Econometrics
  • Strategy and Management
  • Management of Technology and Innovation


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