This paper derives an Equivalence Principle between organizational forms of supervisory and productive activities. We consider an organization with an agent privately informed on his productivity and a risk averse supervisor getting signals on the agent's type. In a centralized organization, the...

We study relative performance of stochastic and deterministic mechanisms in a principal-agent model with hidden information and no monetary transfers. We present an example in which stochastic mechanisms perform strictly better than deterministic ones and can implement any outcome arbitrarily...