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Individual Accountability in Teams

We consider a team production problem in which the principal observes only the group output and not individual effort and in which the principal can only penalize an agent for poor performance if she has verifiable evidence that the agent in question did not fulfill his job assignment. In this environment, agents have an incentive to shirk. However, we show that by including monitoring in the agents' job assignments, the principal induces the agents to exert effort and achieves the first-best. In particular, even though equilibrium job assignments include monitoring, this serves only to provide incentives for effort, and agents do not engage in wasteful monitoring in equilibrium.

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File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_494.pdf
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Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 494.

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Length: 27 pages
Date of creation: Jun 2002
Date of revision:
Handle: RePEc:roc:rocher:494
Contact details of provider: Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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  1. repec:ner:tilbur:urn:nbn:nl:ui:12-78736 is not listed on IDEAS
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  13. Eberhard Feess & Ulrich Hege, 1998. "Efficient Liability Rules for Multi-Party Accidents With Moral Hazard," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 154(2), pages 422-450, June.
  14. Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May.
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  16. Ma, Ching-To, 1988. "Unique Implementation of Incentive Contracts with Many Agents," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 555-72, October.
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