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How often should you open the door? Optimal monitoring to screen heterogeneous agents

  • Andrea Ichino
  • Gerd Muehlheusser

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 mis-behave 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

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Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0319.

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Date of creation: Dec 2003
Date of revision:
Handle: RePEc:ube:dpvwib:dp0319
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  9. Besanko, David & Spulber, Daniel F, 1989. "Antitrust Enforcement under Asymmetric Information," Economic Journal, Royal Economic Society, vol. 99(396), pages 408-25, June.
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  19. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
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  22. A. Mitchell Polinsky & Steven Shavell, 1999. "The Economic Theory of Public Enforcement of Law," NBER Working Papers 6993, National Bureau of Economic Research, Inc.
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  24. Cowen, Tyler & Glazer, Amihai, 1996. "More monitoring can induce less effort," Journal of Economic Behavior & Organization, Elsevier, vol. 30(1), pages 113-123, July.
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  26. Frey, Bruno S, 1993. "Does Monitoring Increase Work Effort? The Rivalry with Trust and Loyalty," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 663-70, October.
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