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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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World Bank

Policy Research Working Paper 7128

 

MOTIVATIONS, MONITORING TECHNOLOGIES, AND PAY FOR PERFORMANCE [December 2014]

by Cordella, Antonio; Cordella, Tito

https://openknowledge.worldbank.org/handle/10986/20608

or

https://openknowledge.worldbank.org/bitstream/handle/10986/20608/WPS7128.pdf?sequence=1

[full-text, 26 pages]

 

Monitoring technologies and pay for

performance contracts are becoming popular solutions to

improve public services delivery. Their track record is

however mixed. To show why this may be the case, this paper

develops a principal agent model where agents'

motivations vary and so does the effectiveness of monitoring

technologies. In such a set-up the model shows that: (i)

monitoring technologies should be introduced only if

agents' motivations are poor; (ii) optimal pay for

performance contracts are nonlinear/non-monotonic in

agents' motivations and monitoring effectiveness; (iii)

investments aimed at improving agents' motivations and

monitoring quality are substitutes when agents are

motivated, complements otherwise; and (iv) if the

agents' "type" is private information, the

more and less motivated agents could be separated through a

menu of pay for performance/non pay for performance

contracts, such that only the less motivated choose the pay

for performance ones.

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