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

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  • Dittrich, Dennis A. V.
  • Kocher, Martin G.

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 standard assumptions. Yet, we also find evidence for reciprocal behavior. Our data analysis shows, however, that it does not pay for the employer to solely rely on the reciprocity of employees.

Suggested Citation

  • Dittrich, Dennis A. V. & Kocher, Martin G., 2011. "Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision," Discussion Papers in Economics 12222, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenec:12222
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    References listed on IDEAS

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    Cited by:

    1. Yongjin Wang & Laixun Zhao, 2013. "Saving Good Jobs under Global Competition by Rewarding Quality and Efforts," Discussion Paper Series DP2013-17, Research Institute for Economics & Business Administration, Kobe University, revised May 2013.
    2. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.

    More about this item

    Keywords

    incentive contracts; supervision; efficiency wages; experiment; incomplete contracts; reciprocity;

    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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