Working Paper: CEPR ID: DP5962
Authors: Dennis Dittrich; Martin Kocher
Abstract: We present an experimental test of a shirking model where monitoring intensity is endogenous and effort a continuous variable. Wage level, monitoring intensity and consequently the desired enforceable effort level are jointly determined by the maximization problem of the firm. As a result, monitoring and pay should be complements. In our experiment, between and within treatment variation is qualitatively in line with the normative predictions of the model under selfishness assumptions. Yet, we also find evidence for reciprocal behavior. The data analysis shows, however, that it does not pay for the employer to rely on the reciprocity of employees.
Keywords: Efficiency Wages; Experiment; Incentive Contracts; Incomplete Contracts; Reciprocity; Supervision
JEL Codes: C91; J31; J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monitoring intensity (C90) | wage level (J31) |
| wage level (J31) | employee effort levels (J22) |
| employee effort levels (J22) | principal's earnings (M52) |
| monitoring and pay (J33) | higher earnings (J31) |
| reciprocity (Z13) | employer strategy efficiency (L21) |