Too Much Monitoring, Not Enough Performance Pay

David de Meza and Clive Southey ()

Economic Journal, 1999, vol. 109, issue 454, C126-39

Abstract: This paper endogenizes the internal organization of competitive firms in a simple general equilibrium framework. The options are monitored teams, unmonitored teams motivated by collective performance pay, and self-employment. The choice of incentive scheme depends on market price and also affects price through its influence on output. As more people opt for self-employment, pecuniary externalities increase the pressure on the rest to follow suit and Pareto rankable multiple equilibria arise. The conditions for a competitive equilibrium to be constrained efficient are restrictive and everyone may gain from policies limiting monitoring and self employment and from the imposition of entry taxes.

Date: 1999
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