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Monitoring and Pay: An Experiment on Employee under Endogenous Supervision

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  • Dittrich, Dennis
  • Kocher, Martin

Abstract

We present an experimental test of a shirking model where monitoring intensity is endogenous and effort a continuous variable. Wage level, monitoring intensity and consequently the desired enforceable effort level are jointly determined by the maximization problem of the firm. As a result, monitoring and pay should be complements. In our experiment, between and within treatment variation is qualitatively in line with the normative predictions of the model under selfishness assumptions. Yet, we also find evidence for reciprocal behavior. The data analysis shows, however, that it does not pay for the employer to rely on the reciprocity of employees.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5962.

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Date of creation: Dec 2006
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Handle: RePEc:cpr:ceprdp:5962

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Keywords: efficiency wages; experiment; incentive contracts; incomplete contracts; reciprocity; supervision;

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References

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  1. Gary E Bolton & Axel Ockenfels, 1997. "A Theory of Equity, Reciprocity, and Competition," Levine's Working Paper Archive 1889, David K. Levine.
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  13. Lanse Minkler, 2002. "Shirking and Motivation in Firms: Survey Evidence on Worker Attitudes," Working papers 2002-37, University of Connecticut, Department of Economics.
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  16. Luft, Joan, 1994. "Bonus and penalty incentives contract choice by employees," Journal of Accounting and Economics, Elsevier, vol. 18(2), pages 181-206, September.
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  18. Neal, Derek, 1993. "Supervision and Wages across Industries," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 409-17, August.
  19. Rebitzer, James B., 1995. "Is there a trade-off between supervision and wages? An empirical test of efficiency wage theory," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 107-129, September.
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  22. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
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