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Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision

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  • Dennis Dittrich
  • Martin Kocher

Abstract

We present an experimental test of a shirking model where monitoring intensity is endogenous and effort a continuous variable. Wage level, monitoring intensity and consequently the desired enforceable effort level are jointly determined by the maximization problem of the firm. As a result, monitoring and pay should be complements. In our experiment, between and within treatment variation is qualitatively in line with the normative predictions of the model under selfishness assumptions. Yet, we also find evidence for reciprocal behavior. The data analysis shows, however, that it does not pay for the employer to rely on the reciprocity of employees.

Suggested Citation

  • Dennis Dittrich & Martin Kocher, 2006. "Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision," Papers on Strategic Interaction 2006-23, Max Planck Institute of Economics, Strategic Interaction Group.
  • Handle: RePEc:esi:discus:2006-23
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    References listed on IDEAS

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    More about this item

    Keywords

    incentive contracts; supervision; efficiency wages; experiment; incomplete contracts; reciprocity;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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