Demougin, Dominique; Fluet, Claude - 1997
This paper analyzes the trade-o! between monitoring and incentives in a principal-agent relationship with moral hazard … the agentfaces a limited liability constraint. We show that the principal uses less monitoring andstronger incentives if … the agent's liability limit is relaxed or if monitoring costs increase.To induce more e!ort on the part of the agent, the …
