Monitoring ’lemons’: why lower productivity workers are sometimes monitored more closely

ABSTRACT

We analyse workplace monitoring in a principal–agent model with two types of workers who differ in their productivity. The firm decides on the effort level, the wage and the monitoring intensity for both workers. We find that the elasticities of the workers’ effort-cost function and the firm’s monitoring-cost function affect the firm’s monitoring intensity. Our results imply that the firm might monitor the low-productive worker more closely than the high-productive worker.

KEYWORDS:

• Principal–agent model
• incentive contracts
• moral hazard
• workplace monitoring

JEL CLASSIFICATION:

• D82
• J41
• J83

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

¹ A detailed derivation is presented in the Appendix.