You are managing a small team. You are meant to make sure they work hard. Monitoring is costly and you would like to shirk your responsibilities. But your monitoring is observable to the worker bees. They incur no costs to observe your effort. If you shirk your duties, there will be payback from the workers. There is always the possibility that they turn you in to your supervisor. This could be a deliberate act. More likely, it is inadvertent because “loose lips” that sink ships. So, you are left with no choice but to monitor. And since you are monitoring, the workers are left with no option but to work. Everyone is worse off. If only the workers could keep their mouths shut and the manager could shirk.
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January 10, 2012 at 9:38 am
John B. Chilton
Off topic, but here’s a tale. There’s a barge and each worker has an oar. The manager has a whip to be used on any oarsman who shirks. Tourists using the barge are horrified until they learn the oarsmen own the business and hired the manager. (Like Romney,) they will fire the manager if she fails to employ the whip.
January 10, 2012 at 9:59 am
anonymoustipster
Sandeep, you talk about this as if it’s your own idea. If so, scooooooped!
http://afinetheorem.wordpress.com/2011/02/01/who-will-monitor-the-monitor-d-rahman-2010/
January 10, 2012 at 10:37 am
Sandeep Baliga
I should have mentioned this paper as I saw it presented at NU.
But I actually attribute something like this idea also to Binmore who I think mentions it in his Fun and Games textbook (if my memory serves me correctly!).
January 10, 2012 at 11:07 am
galudwig
Interesting, but two questions though.
– Not everyone is worse off, as this situation does not occur in isolation. Higher management, the shareholders, the firm in general is better off
– Isn’t this tale more applicable to agency, rather than game, theory? Though it’s true that there is some game theory at work here which causes the monitor to refrain from shirking their duties, the real reason is not because they are afraid of the workers revealing information. Rather, there must necessarily be a higher level, which monitors the monitor (for, if there isn’t, then who hired the monitor in the first place?), most probably through the use of certain kpis which aim to make the agent’s interests coincide with those of the principal