Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/100155
Authors: 
Nosenzo, Daniele
Offerman, Theo
Sefton, Martin
van der Veen, Ailko
Year of Publication: 
2012
Series/Report no.: 
CeDEx Discussion Paper Series 2012-10
Abstract: 
We experimentally investigate a repeated "inspection game" where, in the stage game, an employee can either work or shirk and an employer simultaneously chooses to inspect or not inspect. Combined payoffs are maximized when the employee works and the employer does not inspect. However, the unique equilibrium of the stage game is in mixed strategies with positive probabilities of shirking/inspecting. We examine the effects of allowing the employer to sanction or reward the employee after she has inspected the employee. We find that rewards or sanctions can both discourage shirking, and have similar effects on joint earnings. In games allowing sanctions a reduction in shirking is accomplished with a lower inspection rate and the efficiency gains accrue to employers. In games allowing rewards employers actively reward employees for working and the efficiency gains are shared more equitably. A treatment where employers can combine sanctions and rewards leads to efficiencies similar to the single-instrument treatments, and outcomes more closely resemble those of the reward treatment in that the efficiency gains are shared.
Subjects: 
Inspection Game
Costly Monitoring
Discretionary Incentives
Rewards
Punishment
Experiment
JEL: 
C70
C72
C92
Document Type: 
Working Paper

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