Turning Up the Volume: An Experimental Investigation of the Role of Mutual Monitoring in Tournaments

Posted: 21 Aug 2012

See all articles by R. Lynn Hannan

R. Lynn Hannan

Tulane University - A.B. Freeman School of Business

Kristy L. Towry

Emory University

Yue May Zhang

Northeastern University - Accounting Group

Date Written: July 30, 2012

Abstract

This study investigates experimentally how mutual monitoring affects effort when employees are compensated via rank-order tournaments. Theory and anecdotal evidence suggest that mutual monitoring may either decrease effort by facilitating collusion or increase effort by stimulating competition. In our first experiment, we find that mutual monitoring increases effort, because participants do not attempt to collude but rather behave competitively. This result leads us to expand our theory and develop hypotheses to predict that the effect of mutual monitoring depends on whether employees have the inclination to collude or compete. Specifically, we predict that mutual monitoring decreases effort when employees are inclined to collude and increases effort when employees are inclined to compete. That is, mutual monitoring will not change the basic inclination created by the workplace setting, but will “turn up the volume” on the effect that such inclination has on effort. Consistent with our predictions, our second experiment finds that mutual monitoring leads to lower effort when participants have a collusive inclination and (eventually) higher effort when they have a competitive inclination. Overall, the results from these two studies suggest that allowing employees to observe each other's productive effort in tournament incentive settings may have positive or negative consequences for the firm, depending on whether environmental factors predispose employees to collude or compete.

Keywords: mutual monitoring, collusion, competition, tournament

Suggested Citation

Hannan, Rebecca Lynn and Towry, Kristy L. and Zhang, Yue May, Turning Up the Volume: An Experimental Investigation of the Role of Mutual Monitoring in Tournaments (July 30, 2012). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2133373

Rebecca Lynn Hannan

Tulane University - A.B. Freeman School of Business ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States

Kristy L. Towry

Emory University ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States
404-727-4895 (Phone)

Yue May Zhang (Contact Author)

Northeastern University - Accounting Group ( email )

360 Huntington Ave.
Boston, MA 02115
United States

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