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Monitoring and prudence

Author

Listed:
  • Gabriele Cardullo

    (University of Genova
    IZA)

  • Luca Beltrametti

    (University of Genova)

Abstract

We analyze the impact of monitoring on workers’ effort in a workplace setting where employers can precisely measure total output but cannot perfectly observe the single worker’s contribution. While traditional models highlight the efficiency gains of monitoring, we explore an alternative scenario where risk neutral firms forego monitoring, shifting all income uncertainty to risk-averse workers. We establish the conditions under which the absence of monitoring can yield higher profits than its presence. We also show that when workers’ coefficient of absolute prudence is higher than their coefficient of absolute risk aversion, total output is higher in a no-monitoring setting.

Suggested Citation

  • Gabriele Cardullo & Luca Beltrametti, 2025. "Monitoring and prudence," Journal of Economics, Springer, vol. 146(2), pages 221-235, October.
    • Handle: RePEc:kap:jeczfn:v:146:y:2025:i:2:d:10.1007_s00712-025-00913-1
    DOI: 10.1007/s00712-025-00913-1
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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