Economics, Econometrics and Finance
4 years ago

The high cost of incentives leads to inefficient monitoring in organizations.

Journal of Public Administration Research and Theory
The Principal's Moral Hazard: Constraints on the Use of Incentives in Hierarchy
Gary J. Miller, Andrew B. Whitford

Paper Summary

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In organizations, using incentives to motivate workers can be tricky. Sometimes, it's too expensive for bosses to offer big bonuses that actually work. This can lead to inefficient monitoring and oversight instead of rewarding good work. So, in many cases, bosses end up using control methods that aren't ideal.