In any long term relationship between economic decision-makers, the nature of available information is critical for successful cooperation. The PI will study an information structure called endogenous costly monitoring using techniques drawn from game theory. The distinguishing characteristic of endogenous costly monitoring is that each person has the opportunity to directly observe the actions of others -- at a cost. Examples include collusive industries; each firm in the industry might hire secret shoppers and other researchers to directly observe the prices charged by other firms.
The PI is a young investigator. He and his co-author have already analyzed a basic model and found a class of approximately efficient equilibriua with interesting properties. This award will fund the PIs work to extend and apply this basic framework to three richer models. The first is a multi-task partnership game that is designed to consider some problems that appear in managing joint projects. The second is an application to price-cutting in collusive industries. The third is random task auditing, a management technique that calls for one participant to to observe a randomly chose set of the decisions made by other participants.
