Monitoring and Pay:An Experiment on Employee Performance under Endogenous Supervisiona

We present an experimental test of a shirking model where monitoring intensityis endogenous and effort a continuous variable. Wage level, monitoring intensityand consequently the desired enforceable effort level are jointly determined bythe maximization problem of the firm. As a result, monitoring and pay shouldbe complements. In our experiment, between and within treatment variation isqualitatively in line with the normative predictions of the model under selfishnessassumptions. Yet, we also find evidence for reciprocal behavior. The data analysisshows, however, that it does not pay for the employer to rely on the reciprocity ofemployees.