INPUT VERSUS OUTPUT MONITORING - WHO IS THE RESIDUAL CLAIMANT

We observe that residual claimancy can be a source of rent in a princi pal-agent relationship. We show that the choice between input or outpu t monitoring will be chiefly determined by the identity of the residua l claimant of the principal-agent relationship. The principal will fin d input monitoring more efficient if the principal is the residual cla imant, and he will find output monitoring more efficient if the agent is the residual claimant. If residual claimancy is a choice, the princ ipal will be the residual claimant under input monitoring. Under outpu t monitoring, residual claimancy is not an issue. If both residual cla imancy and the monitoring instrument can be chosen, the principal will choose to monitor input and to be the residual claimant. Journal of E conomic Literature Classification Numbers: D23, D82, L22. (C) 1995 Aca demic Press, Inc.