Formal versus Informal Monitoring in Teams
American Economic Journal: Microeconomics
vol. 7,
no. 2, May 2015
(pp. 27-44)
Abstract
In this paper we analyze a principal's optimal monitoring strategies in a team environment. In doing so we study the interaction between formal monitoring and informal (peer) monitoring. We show that if the technology satisfies complementarity, peer monitoring substitutes for the principal's monitoring. However, if the technology satisfies substitution, the principal's optimal monitoring is independent of the peer monitoring. We also show that if the technology satisfies complementarity, then the principal in the optimal contracts will monitor more closely than in the case of substitution. (JEL D23, D82, M54)Citation
Gershkov, Alex, and Eyal Winter. 2015. "Formal versus Informal Monitoring in Teams." American Economic Journal: Microeconomics, 7 (2): 27-44. DOI: 10.1257/mic.20130277Additional Materials
JEL Classification
- D23 Organizational Behavior; Transaction Costs; Property Rights
- D82 Asymmetric and Private Information; Mechanism Design
- M54 Personnel Economics: Labor Management
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