Incentives and Monitoring in Cooperatives with Labor-Proportionate Sharing Schemes

Abstract

We study the effect of monitoring on work effort in cooperatives in which net revenue is shared, at least partially, in proportion to measured effort. Results for two differing depictions of the technology of monitoring are presented. We find that the hypothesis that imperfect monitoring is responsible for the effort problems of cooperatives is validated for some but not other plausible assumptions about monitoring technology, worker preferences, and the relationship between the marginal and average net products of labor. In the course of our analysis, we follow methodology applied in oligopoly theory to derive a set of stability conditions for the standard N-person cooperative in which workers choose individual effort. J. Comp. Econom., September 1993, 17(3), pp. 663-686. Wesleyan University, Middletown, Connecticut 06457; and Brown University, Providence, Rhode Island 02912.