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Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision

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  • Dennis Dittrich
  • Martin Kocher

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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Bibliographic Info

Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2006-23.

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Length: 35 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:esi:discus:2006-23

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

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References

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  16. Neal, Derek, 1993. "Supervision and Wages across Industries," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 409-17, August.
  17. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
  18. Lanse Minkler, 2002. "Shirking and Motivations in Firms: Survey Evidence on Worker Attitudes," Working papers 2002-40, University of Connecticut, Department of Economics.
  19. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  20. Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997. "Reciprocity as a contract enforcement device: experimental evidence," ULB Institutional Repository 2013/5911, ULB -- Universite Libre de Bruxelles.
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Cited by:
  1. Charness, Gary & Kuhn, Peter J., 2010. "Lab Labor: What Can Labor Economists Learn from the Lab?," IZA Discussion Papers 4941, Institute for the Study of Labor (IZA).
  2. Yongjin Wang & Laixun Zhao, 2013. "Saving Good Jobs under Global Competition by Rewarding Quality and Efforts," Discussion Paper Series DP2013-17, Research Institute for Economics & Business Administration, Kobe University, revised May 2013.

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