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Formal versus Informal Monitoring in Teams

Author

Listed:
  • Alex Gershkov
  • Eyal Winter

Abstract

In this paper we analyze a principal's optimal monitoring strategies in a team environment. In doing so we study the interaction between formal monitoring and informal (peer) monitoring. We show that if the technology satisfies complementarity, peer monitoring substitutes for the principal's monitoring. However, if the technology satisfies substitution, the principal's optimal monitoring is independent of the peer monitoring. We also show that if the technology satisfies complementarity, then the principal in the optimal contracts will monitor more closely than in the case of substitution. (JEL D23, D82, M54)

Suggested Citation

  • Alex Gershkov & Eyal Winter, 2015. "Formal versus Informal Monitoring in Teams," American Economic Journal: Microeconomics, American Economic Association, vol. 7(2), pages 27-44, May.
    • Handle: RePEc:aea:aejmic:v:7:y:2015:i:2:p:27-44
    Note: DOI: 10.1257/mic.20130277
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    References listed on IDEAS

    as
    1. Parimal Kanti Bag & Nona Pepito, 2012. "Peer Transparency In Teams: Does It Help Or Hinder Incentives?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1257-1286, November.
    2. Roland Strausz, 1997. "Delegation of Monitoring in a Principal-Agent Relationship," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(3), pages 337-357.
    3. Sandeep Baliga, 2002. "The not-so-secret-agent: Professional monitors, hierarchies and implementation," Review of Economic Design, Springer;Society for Economic Design, vol. 7(1), pages 17-26.
    4. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    5. Miller, Nolan H., 1997. "Efficiency in Partnerships with Joint Monitoring," Journal of Economic Theory, Elsevier, vol. 77(2), pages 285-299, December.
    6. Ichino, Andrea & Muehlheusser, Gerd, 2008. "How often should you open the door?: Optimal monitoring to screen heterogeneous agents," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 820-831, September.
    7. Strausz, Roland, 1999. "Efficiency in Sequential Partnerships," Journal of Economic Theory, Elsevier, vol. 85(1), pages 140-156, March.
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    Cited by:

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    3. Daniel J. Smith, 2020. "Turn-taking in office," Constitutional Political Economy, Springer, vol. 31(2), pages 205-226, June.
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    8. Fleckinger, Pierre & Martimort, David & Roux, Nicolas, 2023. "Should They Compete or Should They Cooperate? The View of Agency Theory," TSE Working Papers 23-1421, Toulouse School of Economics (TSE), revised Jan 2024.

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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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