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Does Monitoring Decrease Work Effort? The Complementarity Between Agency and Crowding-Out Theories

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David Dickinson
Marie-Claire Villeval

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Abstract

Agency theory assumes that tighter monitoring by the principal should motivate the agent to raise his effort level. In contrast, the “crowding-out” literature suggests that tighter monitoring may reduce the overall work effort. These two assertions are not necessarily contradictory provided that the nature of the employment relationship is taken into account (Frey 1993). This paper reports on the results of a real-effort laboratory experiment designed to test the relative importance of the disciplining effect and the crowding-out effect of monitoring. We find no strong support for the crowding-out hypothesis and we show that the disciplining effect of monitoring dominates in abstract one-shot relationships as well as in somewhat more interpersonal multi-shot relationships. Principals are not trustful enough to refrain from using the monitoring opportunity and most agents react to a decrease in the monitoring intensity by decreasing their effort.

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Paper provided by Department of Economics, Appalachian State University in its series Working Papers with number 05-12.

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Date of creation: 2005
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Handle: RePEc:apl:wpaper:05-12

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  6. Dickinson, David L, 1999. "An Experimental Examination of Labor Supply and Work Intensities," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 638-70, October. [Downloadable!] (restricted)
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  1. Tor Eriksson & Marie-Claire Villeval, 2008. "Performance Pay, Sorting and Social Motivation," Post-Print halshs-00331753_v1, HAL. [Downloadable!]
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  2. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A preference-Based Lucas Critique of Public Policy," Working Papers 2009-11, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
  3. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A Preference-based Lucas Critique of Public Policy," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Antoni Cunyat & Randolph Sloof, 2008. "Employee Types and Endogenous Organizational Design," Tinbergen Institute Discussion Papers 08-019/1, Tinbergen Institute. [Downloadable!]
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