Employee Crime and the Monitoring Puzzle

Lawrence H. Summers, William T. Dickens, Lawrence Katz and Kevin Lang

Scholarly Articles from Harvard University Department of Economics

Abstract: The simplest economic theories of crime predict that profit-maximizing firms should follow strategies of minimal monitoring with large penalties for employee crime. We investigate possible reasons why firms actually spend considerable resources trying to detect employee malfeasance. We find that the most plausible explanations for firms' large outlays on monitoring of employees-legal restrictions on penalty clauses in contracts and the adverse impact of harsh punishment schemes on worker morale-are also consistent with the payment of premium (rent-generating) wages by cost-minimizing firms.

Date: 1989
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Published in Journal of Labor Economics

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