Discretionary Sanctions and Rewards in the Repeated Inspection Game

Daniele Nosenzo, Theo Offerman (t.j.s.offerman@uva.nl), Martin Sefton (martin.sefton@nottingham.ac.uk) and Ailko van der Veen (ailko@xs4all.nl)
Additional contact information
Theo Offerman: Center for Research in Experimental Economics and Political Decision Making, Department of Economics, University of Amsterdam, 1018 WB Amsterdam, Netherlands
Martin Sefton: Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham, Nottingham NG7 2RD, United Kingdom
Ailko van der Veen: Center for Research in Experimental Economics and Political Decision Making, Department of Economics, University of Amsterdam, 1018 WB Amsterdam, Netherlands

Management Science, 2016, vol. 62, issue 2, 502-517

Abstract: We experimentally investigate a repeated “inspection game” where, in the stage game, an employee can either work or shirk and an employer simultaneously chooses to inspect or not inspect. The unique equilibrium of the stage game is in mixed strategies with positive probabilities of shirking/inspecting while combined payoffs are maximized when the employee works and the employer does not inspect. We examine the effects of allowing the employer discretion to sanction or reward the employee after observing stage game payoffs. When employers have limited discretion, and can only apply sanctions and/or rewards following an inspection, we find that both instruments are equally effective in reducing shirking and increasing joint earnings. When employers have discretion to reward and/or sanction independently of whether they inspect, we find that rewards are more effective than sanctions. In treatments where employers can combine sanctions and rewards, employers rely mainly on rewards, and outcomes closely resemble those of treatments where only rewards are possible.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2124 . This paper was accepted by John List, behavioral economics.

Keywords: inspection game; costly monitoring; discretionary incentives; rewards; punishment; experiment (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://dx.doi.org/10.1287/mnsc.2014.2124 (application/pdf)

Related works:
Working Paper: Discretionary Sanctions and Rewards in the Repeated Inspection Game (2014)
Working Paper: Discretionary Sanctions and Reward in the Repeated Inspection Game (2012)
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