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Mutual Monitoring vs. Incentive Pay in Teams

Radoslawa Nikolowa ()

Annals of Economics and Statistics, 2009, issue 93-94, 135-160

Abstract: Agents who work in teams may be better informed about each other's effort than the employer. We analyse how the possibility for employees to write contracts on this information alters the incentives provided by the principal. We show that side-contracting is profitable for the employer when agents are well informed and hardly constrained by a limited liability. Furthermore, we show that mutual monitoring dominates unilateral supervision for high values of the monitoring cost.

Date: 2009
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