On the Hidden Costs of Monitoring Corruption or Effort
In this paper, I analyze the effects of monitoring on an agent’s incentives in a two-period principal-agent model in which the agent decides on his effort and corruptibility. The agent’s type and strategy are unknown to the principal. I compare incentive-compatible wages under three different scenarios: when the principal does not monitor and only observes output; when she monitors the agent’s effort choice; and when she monitors the agent’s corruptibility. I find that monitoring of effort improves the sorting of types but it might also give the agent more incentive to be corrupt. Monitoring of corruption does not improve the sorting of types but it negatively affects the agent’s incentive to be corrupt.
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- Marco Celentani & Juan J. Ganuza, 2000. "Corruption and competition in procurement," Economics Working Papers 464, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2001.
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- Kreps, David M, 1997. "Intrinsic Motivation and Extrinsic Incentives," American Economic Review, American Economic Association, vol. 87(2), pages 359-364, May. Full references (including those not matched with items on IDEAS)
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