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Individual Accountability in Teams

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  • Leslie M. Marx

    ()
    (University of Rochester)

  • Francesco Squintani

    ()
    (University of Rochester)

Abstract

We consider a team production problem in which the principal observes only the group output and not individual effort and in which the principal can only penalize an agent for poor performance if she has verifiable evidence that the agent in question did not fulfill his job assignment. In this environment, agents have an incentive to shirk. However, we show that by including monitoring in the agents' job assignments, the principal induces the agents to exert effort and achieves the first-best. In particular, even though equilibrium job assignments include monitoring, this serves only to provide incentives for effort, and agents do not engage in wasteful monitoring in equilibrium.

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File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_494.pdf
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Bibliographic Info

Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 494.

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Length: 27 pages
Date of creation: Jun 2002
Date of revision:
Handle: RePEc:roc:rocher:494

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Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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Keywords: Individual Liability; Moral Hazard in Teams;

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References

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  1. Wouter Dessein, 2000. "Authority and Communication in Organizations," Econometric Society World Congress 2000 Contributed Papers 1747, Econometric Society.
  2. Che Yeon-Koo, 2002. "Joint Liability and Peer Monitoring under Group Lending," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-28, July.
  3. Prat, A. & Rustichini, A., 1999. "Games Played Through Agents," Discussion Paper 1999-68, Tilburg University, Center for Economic Research.
  4. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
  5. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  6. Baliga, Sandeep & Sjostrom, Tomas, 2001. "Optimal Design of Peer Review and Self-Assessment Schemes," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 27-51, Spring.
  7. Miller, Nolan H., 1997. "Efficiency in Partnerships with Joint Monitoring," Journal of Economic Theory, Elsevier, vol. 77(2), pages 285-299, December.
  8. Ma, Ching-To, 1988. "Unique Implementation of Incentive Contracts with Many Agents," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 555-72, October.
  9. Hege, U. & Feess, E., 1998. "Efficient liability rules for multi-party accidents with moral hazard," Open Access publications from Tilburg University urn:nbn:nl:ui:12-78736, Tilburg University.
  10. Segal, Ilya, 2003. "Coordination and discrimination in contracting with externalities: divide and conquer?," Journal of Economic Theory, Elsevier, vol. 113(2), pages 147-181, December.
  11. Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May.
  12. Nalbantian, Haig R & Schotter, Andrew, 1997. "Productivity under Group Incentives: An Experimental Study," American Economic Review, American Economic Association, vol. 87(3), pages 314-41, June.
  13. Prendergast, Canice, 1993. "A Theory of "Yes Men."," American Economic Review, American Economic Association, vol. 83(4), pages 757-70, September.
  14. Lipman Barton L. & Seppi Duane J., 1995. "Robust Inference in Communication Games with Partial Provability," Journal of Economic Theory, Elsevier, vol. 66(2), pages 370-405, August.
  15. Muller, Holger M & Warneryd, Karl, 2001. "Inside versus Outside Ownership: A Political Theory of the Firm," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 527-41, Autumn.
  16. Arnott, Richard & Stiglitz, Joseph E, 1991. "Moral Hazard and Nonmarket Institutions: Dysfunctional Crowding Out or Peer Monitoring?," American Economic Review, American Economic Association, vol. 81(1), pages 179-90, March.
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Cited by:
  1. Joeri Sol, 2010. "Peer Evaluation: Incentives and Co-Worker Relations," Tinbergen Institute Discussion Papers 10-055/1, Tinbergen Institute.
  2. Ekaterina Goldfayn, 2006. "Organization of R&D With Two Agents and Principal," Bonn Econ Discussion Papers bgse3_2006, University of Bonn, Germany.

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