Wasteful Sanctions, Underperformance, and Endogenous Supervision | Zendy

David A. Miller | Zendy; Kareen Rozen | Zendy

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Wasteful Sanctions, Underperformance, and Endogenous Supervision

Author(s) -

David A. Miller,

Kareen Rozen

Publication year - 2014

Publication title -

american economic journal microeconomics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 5.339

H-Index - 40

eISSN - 1945-7685

pISSN - 1945-7669

DOI - 10.1257/mic.6.4.326

Subject(s) - sanctions , incentive , promotion (chess) , task (project management) , business , shame , microeconomics , economics , psychology , social psychology , political science , management , law , politics

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.

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