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Monitoring and Pay

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  • Allgulin, Magnus

    (Dept. of Economics, Stockholm School of Economics)

  • Ellingsen, Tore

    ()
    (Dept. of Economics, Stockholm School of Economics)

Abstract

The shirking model of efficiency wages has been thought to imply that monitoring and pay are substitute instruments for motivating workers. We demonstrate that this result hinges critically on restrictive assumptions regarding workers' choice of effort - for example that there are only two possible effort levels. Under more reasonable assumptions, monitoring and pay are complementary instruments. Another result is that there is a non-monotonic relationship between the wage level and the workers' rents. Finally, much of the empirical literature on the monitoring-pay relationship is shown to be seriously misguided.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 245.

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Length: 24 pages
Date of creation: 16 Jun 1998
Date of revision: 22 Nov 1999
Handle: RePEc:hhs:hastef:0245

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Keywords: Monitoring; efficiency wages; incentive pay.;

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Cited by:
  1. Dittrich, Dennis A. V. & Kocher, Martin G., 2011. "Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision," Discussion Papers in Economics, University of Munich, Department of Economics 12222, University of Munich, Department of Economics.
  2. Ross, Stephen L. & Zenou, Yves, 2008. "Are Shirking and Leisure Substitutable? An Empirical Test of Efficiency Wages Based on Urban Economic Theory," Working Paper Series, Research Institute of Industrial Economics 753, Research Institute of Industrial Economics.
  3. Jacoby, Hanan G. & Mansuri, Ghazala, 2007. "Incentives, supervision, and sharecropper productivity," Policy Research Working Paper Series 4125, The World Bank.
  4. Pablo González, 2002. "Profit Sharing Reconsidered: Efficiency Wages and Renegotiation Costs," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 151, Centro de Economía Aplicada, Universidad de Chile.
  5. Sarah Brown & Robert McNabb & Karl Taylor, 2006. "Firm Performance, Worker Commitment and Loyalty," Working Papers, The University of Sheffield, Department of Economics 2006005, The University of Sheffield, Department of Economics, revised Apr 2006.
  6. Sessions, John G., 2008. "Wages, supervision and sharing," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 48(4), pages 653-672, November.
  7. James B. Rebitzer & Lowell J. Taylor, 2010. "Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches To Agency and Labor Markets," Economics Working Paper Archive, Levy Economics Institute wp_607, Levy Economics Institute.
  8. Ourania Karakosta & Nikos Tsakiris, 2009. "Indirect Tax Reforms and Public Goods under Imperfect Competition," University of Cyprus Working Papers in Economics, University of Cyprus Department of Economics 5-2009, University of Cyprus Department of Economics.
  9. M Guerrazzi, 2008. "A Dynamic Efficiency-Wage Model with Continuous Effort and Externalities," Economic Issues Journal Articles, Economic Issues, Economic Issues, vol. 13(2), pages 37-58, September.
  10. Sessions, John G. & Theodoropoulos, Nikolaos, 2009. "Tenure, Wage Profiles and Monitoring," Department of Economics Working Papers, University of Bath, Department of Economics 17071, University of Bath, Department of Economics.
  11. Dittrich, Dennis & Kocher, Martin, 2006. "Monitoring and Pay: An Experiment on Employee under Endogenous Supervision," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5962, C.E.P.R. Discussion Papers.

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