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Mutual Monitoring versus Incentive Pay in Teams

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  • Nikolova, Radoslava

Abstract

In a principal - multi-agent relationship, we derive the optimal mutual monitoring - incentive pay mix. When agents are better informed about their effort choices than the principal, and when their information is suffciently "good" there is a substituability between those two modes of providing incentives. However the optimal mix will depend on the liability limit of the agents. Thus when it is suffciently slack the principal uses stronger incentive pay and less mutual monitoring. We derive the conditions for the adoption of costly supervisory technology. We finish by comparing two possible organizational structures: delegation with unilateral supervision versus mutual monitoring.

Suggested Citation

  • Nikolova, Radoslava, 2005. "Mutual Monitoring versus Incentive Pay in Teams," Cahiers du LASER (LASER Working Papers) 2005.15, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1.
  • Handle: RePEc:mop:lasrwp:2005.15
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    File URL: http://www.laser.univ-montp1.fr/Cahiers/cahier150205.pdf
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    Keywords

    Principal - Multi-agents; Side contracting; Mutual Monitoring;

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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