Knowledge that Transforms

There has been limited application of the large theoretical literature in the areas of agency and monitoring to personnel management issues. The research developing and testing implications of agency theory on the design of compensation contracts has focused on managerial labor contracts; the theory of monitoring has seen even fewer applications to the personnel literature. The premise of this paper is that while agency issues may be directly applicable to managerial labor, for nonmanagerial personnel the monitoring problem must be addressed preliminary to the design of incentive contracts. I first describe the role of commitment in monitoring problems. This is then applied to a discussion of the difference between penalties and rewards in motivating workers. The relative success of Japanese manufacturing techniques is then put in the context of an organizational attempt to solve the monitoring problem. I conclude by suggesting areas for future research.

There is a tendency to think of official government statistics as unambiguous measures of economic activity. In truth, however, nearly all of the available series are based heavily on assumptions, and are sensitive to the estimation techniques used. Furthermore, many of these assumptions and estimation techniques have been refined and improved over time. Whether these underlying assumptions are reasonable and whether the refinement of assumptions over time has been useful depends crucially on the questions one is trying to answer. For example, an estimate of consumption derived from data on retail sales may be perfectly adequate for planning future production, or setting government budgets, but may be disastrous for testing a subtle economic theory. Similarly, gathering more genuine consumption data might improve our current estimates of consumption, but a series that reflects retail sales for one era and genuine consumption for another could wreak havoc when used in estimating a time-series rela

This paper surveys a set of experiments conducted by Roy Radner and myself (1989) and Peter Linhart, Radner, and myself (1989a; b), all of which were conducted to investigate the properties of the sealed-bid mechanism, a mechanism used to structure bargaining under situations of incomplete information. What we find is both bad news and good news for the mechanism. The bad news is that the behavior of subjects seems quite sensitive to the parameters of the prior distribution of types used and the number of rounds over which the experiment is run. As such prior distributions become more skewed (in a sense to be defined below), and the number of rounds in the experiment are increased to 75, bidder behavior becomes less linear. Such movements have a regular pattern, however, and this phenomenon is remarkably consistent. The good news is that such behavioral shifts do not seem to interfere with the efficiency of the mechanism. This is of course important for the acceptance of the mechanism in the real world, since if efficiency were to change dramatically as we change the parameters of the environment, adoption would have to proceed on a case-by-case basis. The fact that our results imply robustness of efficiencies indicates that, at least on a practical level, the sealed-bid mechanism may be a viable way to structure bargaining in many large-scale economic organizations. I. The Sealed-Bid Mechanism