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 in equilibrium, 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. When private information is introduced, both high- and low-productivity unconventional workers benefit, in contrast to standard agency models with asymmetric information. Both types of agents still experience a utility shortfall, however.