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Hidden Gaming in Hierarchies: Facts and Models *
Author(s) -
LAFFONT JEANJACQUES
Publication year - 1988
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1988.tb02068.x
Subject(s) - supervisor , incentive , principal (computer security) , extortion , discretion , hierarchy , business , control (management) , intervention (counseling) , computer science , microeconomics , computer security , economics , artificial intelligence , psychology , political science , management , market economy , psychiatry , law
We study a three‐level hierarchy in which the role of the supervisor is to transmit to the entrepreneur (the principal) information about workers' individual performances We are concerned with a form of discretion which arises from monitoring personalized incentive schemes through a supervisor, that we call hidden gaming. The supervisor can use his discretionary power to organize games unobserved by the principal which enable him to extract benefits from workers. This extortion activity decreases the level of efficiency of the organization and it is shown to subsist partly even when the principal monitors the supervisor with the best incentive scheme based on his own information. In some circumstances non‐personalized incentive schemes are optimal because of hidden gaming. The paper concludes with a discussion of possible motivations for public intervention within organizations to eliminate extortions due to hidden gaming.