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Moral hazard and monitoring.
wMoral hazard: the incentive to cheat in the absence of penalties for cheating.
nOrigins in insurance.
wAnother kind of “plasticity” of behavior after contract is signed.
wIf monitoring is costly, agents have incentive to supply less effort than they agreed to.
wAlchian and Demsetz: costly monitoring explains the organization of the firm.
Harold Demsetz (1930-)
Armen Alchian (1919-)