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Firm-Wide Incentives and Mutual Monitoring at Continental Airlines

  • Knez, Marc
  • Simester, Duncan
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    In February 1995 Continental Airlines introduced an incentive scheme that promised monthly bonuses to all 35,000 hourly employees if the company achieved a firm-wide performance goal. Conventional wisdom suggests that free riding will render such schemes ineffective. We present evidence indicating that the incentive scheme raised employee performance despite the apparent threat of free riding. To explain why the scheme may have been effective we argue that the organization of employees into autonomous work groups enabled Continental to induce mutual monitoring among employees within each work group. Copyright 2001 by University of Chicago Press.

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    File URL: http://dx.doi.org/10.1086/322820
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    Article provided by University of Chicago Press in its journal Journal of Labor Economics.

    Volume (Year): 19 (2001)
    Issue (Month): 4 (October)
    Pages: 743-72

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    Handle: RePEc:ucp:jlabec:v:19:y:2001:i:4:p:743-72
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JOLE/

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    1. Ehud Kalai & Ehud Lehrer, 1991. "Subjective Equilibrium in Repeated Games," Discussion Papers 981, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    3. Douglas L. Kruse, 1993. "Does Profit Sharing Affect Productivity?," NBER Working Papers 4542, National Bureau of Economic Research, Inc.
    4. Ehud Kalai & Ehud Lehrer, 1993. "Subjective Games and Equilibria: I+," Discussion Papers 1077, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-17, August.
    6. Michael A.Conte & Douglas Kruse, 1991. "ESOPs and Profit - Sharing Plans: Do They Link Employee Pay to Company Performance?," Financial Management, Financial Management Association, vol. 20(4), Winter.
    7. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
    8. Joseph Blasi & Michael Conte & Douglas Kruse, 1996. "Employee Stock Ownership and Corporate Performance among Public Companies," ILR Review, Cornell University, ILR School, vol. 50(1), pages 60-79, October.
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