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Optimal Work Effort and Monitoring Cost

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  • Tamara Todorova

    (American University in Bulgaria)

Abstract

Using a simple job market equilibrium model we study the relationship between work effort and monitoring by firms. Some other determinants of work effort investigated include the educational level of the worker, the minimum or start-up salary as well as the economic conjuncture. As common logic dictates, optimal work effort increases with the amount of monitoring done by the employer. Quite contrary to common logic, though, we find that at the optimum employers observe and control good workers much more stringently and meticulously than poor workers. This is because under profit maximization most of the employer’s profit and surplus result from good workers and he risks losing a large amount of profit by not observing those. Managers monitor strictly more productive workers, fast learners and those starting at a higher autonomous level of monitoring, as those contribute more substantially to the firm’s profit.

Suggested Citation

  • Tamara Todorova, 2012. "Optimal Work Effort and Monitoring Cost," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 2(6), pages 1-3, December.
  • Handle: RePEc:spp:jkmeit:1328
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    References listed on IDEAS

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    1. Lawrence Katz & Alan Krueger, 1992. "The Effect of the Minimum Wage on the Fast Food Industry," Working Papers 678, Princeton University, Department of Economics, Industrial Relations Section..
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    7. Barzel, Yoram, 1987. "The Entrepreneur's Reward for Self-policing," Economic Inquiry, Western Economic Association International, vol. 25(1), pages 103-116, January.
    8. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290 National Bureau of Economic Research, Inc.
    9. van den Berg, Gerard J, 1992. "A Structural Dynamic Analysis of Job Turnover and the Costs Associated with Moving to Another Job," Economic Journal, Royal Economic Society, vol. 102(414), pages 1116-1133, September.
    10. Kahn, Lawrence M, 1978. "The Returns to Job Search: A Test of Two Models," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 496-503, November.
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    12. repec:fth:prinin:298 is not listed on IDEAS
    13. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213-213.
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