How Often Should You Open the Door? Optimal Monitoring to Screen Heterogeneous Agents
28 Pages Posted: 13 Feb 2004
Date Written: January 2004
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 misbehave 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.
Keywords: monitoring, probation, effort, asymmetric information
JEL Classification: D2, D8, M5
Suggested Citation: Suggested Citation