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Wasteful Sanctions, Underperformance, and Endogenous Supervision

Author

Listed:
  • David A. Miller Jr.
  • Kareen Rozen Jr.

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.

Suggested Citation

  • David A. Miller Jr. & Kareen Rozen Jr., 2014. "Wasteful Sanctions, Underperformance, and Endogenous Supervision," American Economic Journal: Microeconomics, American Economic Association, vol. 6(4), pages 326-361, November.
    • Handle: RePEc:aea:aejmic:v:6:y:2014:i:4:p:326-61
    Note: DOI: 10.1257/mic.6.4.326
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    Citations

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    Cited by:

    1. Eliaz, Kfir & de Clippel, Geoffroy & Rozen, Kareen, 2016. "The Silent Treatment," CEPR Discussion Papers 11335, C.E.P.R. Discussion Papers.
    2. Sabyasachi Das, 2023. "Inequality in Hierarchies," Working Papers 95, Ashoka University, Department of Economics.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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