Monitoring and Pay: An Experiment on Employee Performance Under Endogenous Supervision

39 Pages Posted: 7 Feb 2011

See all articles by Dennis Alexis Valin Dittrich

Dennis Alexis Valin Dittrich

Touro College Berlin; Bremen International Graduate School of Social Sciences (BIGSSS)

Martin G. Kocher

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; Institute for Advanced Studies (IHS) - Department of Economics & Finance; Göteborg University - School of Business, Economics and Law; Queensland University of Technology - School of Economics and Finance

Date Written: January 11, 2011

Abstract

We present an experimental test of a shirking model where monitoring intensity is endogenous and effort a continuous variable. Wage level, monitoring intensity and consequently the desired enforceable effort level are jointly determined by the maximization problem of the firm. As a result, monitoring and pay should be complements. In our experiment, between and within treatment variation is qualitatively in line with the normative predictions of the model under standard assumptions. Yet, we also find evidence for reciprocal behavior. Our data analysis shows, however, that it does not pay for the employer to solely rely on the reciprocity of employees.

Keywords: incentive contracts, supervision, efficiency wages, experiment, incomplete contracts, reciprocity

JEL Classification: C91, J31, J41

Suggested Citation

Dittrich, Dennis Alexis Valin and Kocher, Martin G., Monitoring and Pay: An Experiment on Employee Performance Under Endogenous Supervision (January 11, 2011). Available at SSRN: https://ssrn.com/abstract=1755002 or http://dx.doi.org/10.2139/ssrn.1755002

Dennis Alexis Valin Dittrich (Contact Author)

Touro College Berlin ( email )

Am Rupenhorn 5
Berlin, 14055
Germany

Bremen International Graduate School of Social Sciences (BIGSSS) ( email )

Wiener Strasse
FVG-West
Bremen, DE 28215
Germany

Martin G. Kocher

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

Institute for Advanced Studies (IHS) - Department of Economics & Finance ( email )

Stumpergasse 56
A-1060 Vienna, A-1060
Austria

Göteborg University - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

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