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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
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Handle: RePEc:cpr:ceprdp:4255
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  1. Aldo Rustichini & Uri Gneezy, 2000. "A fine is a price," Natural Field Experiments 00258, The Field Experiments Website.
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  10. George J. Mailath & Larry Samuelson, . ""Who Wants a Good Reputation?''," CARESS Working Papres 98-12, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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  13. Asha Sadanand & Venkatraman Sadanand & Denton Marks, 1989. "Probationary Contracts in Agencies with Bilateral Asymmetric Information," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 643-61, August.
  14. Watson, Joel, 1999. "Starting Small and Renegotiation," Journal of Economic Theory, Elsevier, vol. 85(1), pages 52-90, March.
  15. Frey, Bruno S, 1993. "Does Monitoring Increase Work Effort? The Rivalry with Trust and Loyalty," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 663-70, October.
  16. A. Mitchell Polinsky & Steven Shavell, 1999. "The Economic Theory of Public Enforcement of Law," NBER Working Papers 6993, National Bureau of Economic Research, Inc.
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  19. Dubey, Pradeep & Wu, Chien-wei, 2001. "Competitive prizes: when less scrutiny induces more effort," Journal of Mathematical Economics, Elsevier, vol. 36(4), pages 311-336, December.
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  27. Andrea Ichino & Regina T. Riphahn, 2005. "The Effect of Employment Protection on Worker Effort: Absenteeism During and After Probation," Journal of the European Economic Association, MIT Press, vol. 3(1), pages 120-143, 03.
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