Employee Crime, Monitoring, and the Efficiency Wage Hypothesis

23 Pages Posted: 6 Apr 2007 Last revised: 13 Dec 2010

See all articles by William T. Dickens

William T. Dickens

Northeastern University - Department of Economics; Federal Reserve Banks - Federal Reserve Bank of Boston; Brookings Institution

Lawrence F. Katz

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Kevin Lang

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

Lawrence H. Summers

Harvard University; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: August 1987

Abstract

This paper offers some observations on employee crime, economic theories of crime, limits on bonding, and the efficiency wage hypothesis. We demonstrate that the simplest economic theories of crime predict that profit-maximizing firms should follow strategies of minimal monitoring and large penalties for employee crime. Finding overwhelming empirical evidence that firms expend considerable resources trying to detect employee malfeasance and do not impose extremely large penalties, we investigate a number of possible reasons why the simple model's predictions fail. It turns out that plausible explanations for firms large outlays on monitoring of employees also justify the payment of premium wages in some circumstances. There is no legitimate a priori argument that firms should not pay efficiency wages once it is recognized that they expend significant resources on monitoring.

Suggested Citation

Dickens, William T. and Katz, Lawrence F. and Lang, Kevin and Summers, Lawrence H., Employee Crime, Monitoring, and the Efficiency Wage Hypothesis (August 1987). NBER Working Paper No. w2356. Available at SSRN: https://ssrn.com/abstract=977159

William T. Dickens (Contact Author)

Northeastern University - Department of Economics ( email )

301 Lake Hall
Boston, MA 02115
United States

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Brookings Institution ( email )

1775 Massachusetts Ave. NW
Economic Studies
Washington, DC 20036-2188
United States

Lawrence F. Katz

Harvard University - Department of Economics ( email )

Littauer Center
Room 215
Cambridge, MA 02138
United States
617-495-5148 (Phone)
617-868-2742 (Fax)

HOME PAGE: http://www.economics.harvard.edu/faculty/katz/katz

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kevin Lang

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lawrence H. Summers

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States
617-495-1502 (Phone)
617-495-8550 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
34
Abstract Views
751
PlumX Metrics