Dongsoo Shin and Aaron Finkle
We consider a principal-agent relationship in which the principals monitoring can be obstructive to the agent, reducing the agents productivity. We show that, with obstructive monitoring, the optimal output schedule is distorted in all directions the high-cost agent produces less, and the low-cost agent produces more than the rst-best levels. Moreover, if the principal has a choice, she will make monitoring deliberately obstructive, because when monitoring is obstructive, although the agents productivity decreases, his information rent is extracted more e¤ectively. We also show that obstruction is optimal even when the principal is unable to commit to her monitoring strategy ex ante.