The simplest economic theories of crime predict that profit-maximizing firms should follow strategies of minimal monitoring with large penalties for employee crime. The authors investigate possible reasons why firms actually spend considerable resources trying to detect employee malfeasance. They find that the most plausible explanations for firms' large outlays on monitoring of employees--legal restrictions on penalty clauses in contracts and the adverse impact of harsh punishment schemes on worker morale--are also consistent with the payment of premium (rent-generating) wages by cost-minimizing firms. Coauthors are Lawrence F. Katz, Kevin Lang, and Lawrence H. Summers. Copyright 1989 by University of Chicago Press.
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