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How Often Should you Open the Door? Optimal Monitoring to Screen Heterogeneous Agents

  • Ichino, Andrea
  • Muehlheusser, Gerd

This Paper shows that over monitoring a partner in the initial phase of a relationship may not be optimal if the goal is to determine loyalty and if the cost of ending the relationship increases over time. This intuition is simple: by monitoring too much we lose the opportunity to learn how the partner will behave when not monitored. Only by allowing the partner the possibility to misbehave is there a chance to determine their characteristics at a time when separation would be possible at a relatively low cost.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4255.

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Date of creation: Feb 2004
Handle: RePEc:cpr:ceprdp:4255
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