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  3. American Economic Journal: Microeconomics
  4. November 2014
  5. Wasteful Sanctions, Underperformance, and Endogenous Supervision

Wasteful Sanctions, Underperformance, and Endogenous Supervision

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Abstract

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.

Citation

Miller, David A., and Kareen Rozen. 2014. "Wasteful Sanctions, Underperformance, and Endogenous Supervision." American Economic Journal: Microeconomics, 6 (4): 326-61. DOI: 10.1257/mic.6.4.326

Additional Materials

JEL Classification

  • D82 Asymmetric and Private Information; Mechanism Design
  • D86 Economics of Contract: Theory
  • J41 Labor Contracts
  • M12 Personnel Management; Executives; Executive Compensation
  • M54 Personnel Economics: Labor Management
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