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Wasteful Sanctions, Underperformance, and Endogenous Supervision

David Miller and Kareen Rozen ()

American Economic Journal: Microeconomics, 2014, vol. 6, issue 4, 326-61

Abstract: We study optimal contracting in team settings where agents have many opportunities to shirk, task-level monitoring is needed to provide useful incentives, and it is difficult to write individual performance into formal contracts. Incentives are provided informally, using wasteful sanctions like guilt and shame, or slowed promotion. These features give rise to optimal contracts with under performance, forgiving sanctioning schemes, and endogenous supervision structures. Agents optimally take on more assigned tasks than they intend to complete, leading to the concentration of supervisory responsibility in the hands of one or two agents.

JEL-codes: D82 D86 J41 M12 M54 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/mic.6.4.326
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