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Holmstrom (1999) - The Firm As A Subeconomy (view source)
Revision as of 21:03, 16 December 2010
, 21:03, 16 December 2010→Free Rider Problem
Assuming <math>y\;</math> is diffentiable (which is not innocuous) and strictly concave (diminising returns to scale, or increasing costs of effort), then <math>e^*\;</math> is completely characterized by (marginal benefit equals marginal cost):
:<math>\frac{\partial <math>y(e^*)}{\partial e_i} = 1 \quad \forall i=1,\ldots,n\;</math>
Thus as long as the measure is not collinear with output, it provides additional info and can be used to strengthen incentives. This extends directly to <math>n\;</math> workers.
==Ownership and Incomplete Contracts==
