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How often should you open the door? Optimal monitoring to screen heterogeneous agents

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  • Gerd Muehlheusser
  • Andrea Ichino

Abstract

This paper shows that monitoring too much a partner in the initial phase of a relationship may not be optimal if the goal is to determine his loyalty to the match and if the cost of ending the relationship increases over time. The intuition is simple: by monitoring too much we learn less on how the partner will behave when he is not monitored. Only by giving to the partner the possibility to mis-behave he might be tempted to do it, and only in this case there is a chance to learn his type at a time where separation would be possible at a relatively low cost

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File URL: http://repec.org/esNASM04/up.20734.1071657242.pdf
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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 60.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:60

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Keywords: Monitoring; probation; effort; asymmetric information;

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References

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Citations

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Cited by:
  1. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, American Economic Association, vol. 96(5), pages 1611-1630, December.
  2. 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.
  3. Falk, Armin & Kosfeld, Michael, 2004. "Distrust - The Hidden Cost of Control," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4512, C.E.P.R. Discussion Papers.
  4. Sami, Hind, 2009. "Random monitoring in financing relationships," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 49(2), pages 239-252, May.
  5. 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.
  6. David Hugh-Jones & David Reinstein, 2014. "Exclude the Bad Actors or Learn About The Group," Economics Discussion Papers, University of Essex, Department of Economics 750, University of Essex, Department of Economics.
  7. Renato Faccini, 2007. "Unemployment and Within-Group Wage Inequality: Can Information Explain the Trade-Off?," Economics Working Papers, European University Institute ECO2007/14, European University Institute.
  8. Warren, Patrick L. & Wilkening, Tom S., 2012. "Regulatory fog: The role of information in regulatory persistence," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 84(3), pages 840-856.
  9. Benjamin Bental & Bruno Deffains & Dominique Demougin, 2012. "Credibility and Monitoring: Outsourcing as a Commitment Device," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 21(1), pages 31-52, 03.
  10. 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.
  11. 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).
  12. Smirnykh, Larisa & Wörgötter, Andreas, 2013. "Why Do Russian Firms Use Fixed-Term and Agency Work Contracts?," IZA Policy Papers, Institute for the Study of Labor (IZA) 54, Institute for the Study of Labor (IZA).

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