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How Often Should you Open the Door? Optimal Monitoring to Screen Heterogeneous Agents

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  • Ichino, Andrea
  • Muehlheusser, Gerd

Abstract

This Paper shows that over monitoring a partner in the initial phase of a relationship may not be optimal if the goal is to determine loyalty and if the cost of ending the relationship increases over time. This intuition is simple: by monitoring too much we lose the opportunity to learn how the partner will behave when not monitored. Only by allowing the partner the possibility to misbehave is there a chance to determine their characteristics at a time when separation would be possible at a relatively low cost.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4255.

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Date of creation: Feb 2004
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Handle: RePEc:cpr:ceprdp:4255

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Keywords: asymmetric information; effort; M50; monitoring; probation;

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References

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Citations

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Cited by:
  1. Armin Falk & Michael Kosfeld, . "Distrust - The Hidden Cost of Control," IEW - Working Papers 193, Institute for Empirical Research in Economics - University of Zurich.
  2. Hind Sami, 2009. "Random monitoring in financing relationships," Post-Print halshs-00522629, HAL.
  3. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
  4. Smirnykh, Larisa & Wörgötter, Andreas, 2013. "Why Do Russian Firms Use Fixed-Term and Agency Work Contracts?," IZA Policy Papers 54, Institute for the Study of Labor (IZA).
  5. Englmaier, Florian & Filipi, Ales & Singh, Ravi, 2010. "Incentives, Reputation and the Allocation of Authority," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 327, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Cristini, Annalisa & Origo, Federica & Pinoli, Sara, 2012. "The Healthy Fright of Losing a Good One for a Bad One," IZA Discussion Papers 6348, Institute for the Study of Labor (IZA).
  7. David Hugh-Jones & David Reinstein, 2014. "Exclude the Bad Actors or Learn About The Group," Economics Discussion Papers 750, University of Essex, Department of Economics.
  8. Renato Faccini, 2007. "Unemployment and Within-Group Wage Inequality: Can Information Explain the Trade-Off?," Economics Working Papers ECO2007/14, European University Institute.
  9. Warren, Patrick L. & Wilkening, Tom S., 2012. "Regulatory fog: The role of information in regulatory persistence," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 840-856.
  10. Pinoli, Sara, 2008. "Screening ex-ante or screening on-the-job? The impact of the employment contract," MPRA Paper 11429, University Library of Munich, Germany.
  11. Benjamin Bental & Bruno Deffains & Dominique Demougin, 2012. "Credibility and Monitoring: Outsourcing as a Commitment Device," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(1), pages 31-52, 03.
  12. Berno Buechel & Gerd Mühlheusser, 2014. "Black Sheep or Scapegoats? Implementable Monitoring Policies under Unobservable Levels of Misbehavior," CESifo Working Paper Series 4698, CESifo Group Munich.

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