Geeksploitation: Optimism and Monitoring-Aversion in Agency Relationships

Abstract

This paper addresses the contracting implications of New Economy firms: informal, flexible organizations predominantly staffed by younger workers. The model incorporates two findings from the behavioral economics literature. First, workers may overestimate their own productivity (optimism). Second, workers may be monitoring-averse, with intense monitoring undermining intrinsic motivation. The combination of behavioral traits and work setting has deleterious consequences for workers. Despite higher monetary compensation and sometimes weaker incentives, they work harder and experience a higher disutility of effort than conventional workers, and also have a utility realization that is lower on average than their reservation utility. Optimism and monitoring-aversion are mutually reinforcing. In contrast to standard agency models, both high- and low-type unconventional workers benefit from private information. The utility shortfall, however, may persist despite the rent extraction.