Monitoring with Collective Memory

David A. Miller and Kareen Rozen ()

No 1698, Cowles Foundation Discussion Papers from Cowles Foundation, Yale University

Abstract: We propose a model in which teammates promise to complete socially efficient tasks; each task is an activity that a single person must exert costly effort to complete properly, but can be “botched” effortlessly. Each team member has limited capacity to allocate between monitoring and productive tasks. Such resource constraints may arise from limited time, staffing, capital, attention, or, as in our main example, bounded memory. The possibility of completing each task properly is privately observed, and monitoring is imperfect. We find that an optimal contract in this setting is generally "forgiving," and that players optimally make "empty promises" that they don’t necessarily intend to fulfill. As uncertainty in production and monitoring increases (e.g., due to greater forgetfulness), players optimally make more empty promises and devote more of their resources to monitoring.

Keywords: Bounded memory; Working memory; Team production; Costly monitoring; Moral hazard; Capacity constraints; Optimal contracts; Forgiveness; Empty promises; Collective memory; Crosscueing; Transactive responsibility (search for similar items in EconPapers)
JEL-codes: C72 D03 D86 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta
Date: 2009-06, Revised 2009-10

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Persistent link: http://EconPapers.repec.org/RePEc:cwl:cwldpp:1698

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