Discussion paper

DP4255 How Often Should you Open the Door? Optimal Monitoring to Screen Heterogeneous Agents

This Paper shows that over monitoring a partner in the initial phase of a relationship may not be optimal if the goal is to determine loyalty and if the cost of ending the relationship increases over time. This intuition is simple: by monitoring too much we lose the opportunity to learn how the partner will behave when not monitored. Only by allowing the partner the possibility to misbehave is there a chance to determine their characteristics at a time when separation would be possible at a relatively low cost.

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Citation

Ichino, A and G Muehlheusser (eds) (2004), “DP4255 How Often Should you Open the Door? Optimal Monitoring to Screen Heterogeneous Agents”, CEPR Press Discussion Paper No. 4255. https://cepr.org/publications/dp4255