How Often Should You Open the Door? Optimal Monitoring to Screen Heterogeneous Agents

27 Pages Posted: 25 Mar 2004

See all articles by Andrea Ichino

Andrea Ichino

University of Bologna

Gerd Muehlheusser

University of Hamburg; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 2004

Abstract

This Paper shows that over monitoring a partner in the initial phase of a relationship may not be optimal if the goal is to determine loyalty and if the cost of ending the relationship increases over time. This intuition is simple: by monitoring too much we lose the opportunity to learn how the partner will behave when not monitored. Only by allowing the partner the possibility to misbehave is there a chance to determine their characteristics at a time when separation would be possible at a relatively low cost.

Keywords: Monitoring, probation, effort, asymmetric information

JEL Classification: D20, D80, M50

Suggested Citation

Ichino, Andrea and Muehlheusser, Gerd, How Often Should You Open the Door? Optimal Monitoring to Screen Heterogeneous Agents (February 2004). CEPR Discussion Paper No. 4255. Available at SSRN: https://ssrn.com/abstract=511041

Andrea Ichino (Contact Author)

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy
+39 349 5965919 (Phone)

Gerd Muehlheusser

University of Hamburg ( email )

Von Melle Park 5
Hamburg, 20146
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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