We study optimal contracting in team settings where agents have
many opportunities to shirk, task-level monitoring is needed to provide useful incentives, and it is difficult to write individual performance into formal contracts. Incentives are provided informally, using wasteful sanctions like guilt and shame, or slowed promotion. These features give rise to optimal contracts with under performance, forgiving sanctioning schemes, and endogenous supervision structures. Agents optimally take on more assigned tasks than they intend to complete, leading to the concentration of supervisory responsibility in the hands of one or two agents.
Miller, David A., and Kareen Rozen.
"Wasteful Sanctions, Underperformance, and Endogenous Supervision."
American Economic Journal: Microeconomics,
Asymmetric and Private Information; Mechanism Design
Economics of Contract: Theory
Personnel Management; Executives; Executive Compensation
Personnel Economics: Labor Management