Agency theory assumes that tighter monitoring by the principal should motivate the agent to raise his effort level. In contrast, the “crowding-out” literature suggests that tighter monitoring may reduce the overall work effort. These two assertions are not necessarily contradictory provided...

The Peter Principle states that, after a promotion, the observed output of promoted employees tends to fall. Lazear (2004) models this principle as resulting from a regression to the mean of the transitory component of ability. Our experiment reproduces this model in the laboratory by means of...