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

Author

Listed:
  • Ichino, Andrea

    () (European University Institute)

  • Muehlheusser, Gerd

    () (University of Hamburg)

Abstract

This paper shows that monitoring too much a partner in the initial phase of a relationship may not be optimal if the goal is to determine his loyalty to the match and if the cost of ending the relationship increases over time. The intuition is simple: by monitoring too much we learn less on how the partner will behave when he is not monitored. Only by giving to the partner the possibility to misbehave he might be tempted to do it, and only in this case there is a chance to learn his type at a time where separation would be possible at a relatively low cost.

Suggested Citation

  • Ichino, Andrea & Muehlheusser, Gerd, 2004. "How Often Should You Open the Door? Optimal Monitoring to Screen Heterogeneous Agents," IZA Discussion Papers 987, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp987
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    References listed on IDEAS

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    Cited by:

    1. Larisa Smirnykh & Andreas Wörgötter, 2013. "Why do Russian Firms Use Fixed-Term and Agency Work Contracts?," OECD Economics Department Working Papers 1014, OECD Publishing.
    2. Benjamin Bental & Bruno Deffains & Dominique Demougin, 2012. "Credibility and Monitoring: Outsourcing as a Commitment Device," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(1), pages 31-52, March.
    3. Warren, Patrick L. & Wilkening, Tom S., 2012. "Regulatory fog: The role of information in regulatory persistence," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 840-856.
    4. Cristini, Annalisa & Origo, Federica & Pinoli, Sara, 2017. "The healthy fright of losing a good one for a bad one," Journal of Economic Psychology, Elsevier, vol. 59(C), pages 129-144.
    5. Sami, Hind, 2009. "Random monitoring in financing relationships," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 239-252, May.
    6. S. Nageeb Ali & Roland Bénabou, 2016. "Image Versus Information: Changing Societal Norms and Optimal Privacy," NBER Working Papers 22203, National Bureau of Economic Research, Inc.
    7. Armin Falk & Michael Kosfeld, "undated". "Distrust - The Hidden Cost of Control," IEW - Working Papers 193, Institute for Empirical Research in Economics - University of Zurich.
    8. Pinoli, Sara, 2008. "Screening ex-ante or screening on-the-job? The impact of the employment contract," MPRA Paper 11429, University Library of Munich, Germany.
    9. Hugh-Jones, David & Reinstein, David, 2014. "Exclude the Bad Actors or Learn About The Group," Economics Discussion Papers 10010, University of Essex, Department of Economics.
    10. Englmaier, Florian & Filipi, Ales & Singh, Ravi, 2010. "Incentives, reputation and the allocation of authority," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 413-427, November.
    11. Berno Buechel & Gerd Muehlheusser, 2016. "Black Sheep or Scapegoats? Implementable Monitoring Policies under Unobservable Levels of Misbehavior," The Journal of Legal Studies, University of Chicago Press, vol. 45(2), pages 331-366.
    12. Alex Gershkov & Eyal Winter, 2015. "Formal versus Informal Monitoring in Teams," American Economic Journal: Microeconomics, American Economic Association, vol. 7(2), pages 27-44, May.
    13. repec:esx:essedp:750 is not listed on IDEAS
    14. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.

    More about this item

    Keywords

    asymmetric information; monitoring; probation; effort;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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