Need I remind you? Monitoring with collective memory
David A. Miller
We consider a team setting where forgetful players with limited memories have costly but socially efficient tasks to complete. Each teammate promises to complete some subset of the tasks, and strategically memorizes her own promises as well as a subset of her teammates' promises. She can be contractually punished for an unfulfilled promise only if another player remembers it. Hence the team’s collective memory serves as a costly monitoring device. We show that linear contracts are the optimal way to ensure that a player completes as many promises as she remembers, and characterize the optimal linear contract when players’ memories differ in size and quality. Linear contracts are indeed optimal if players are not very forgetful. However, when players are more forgetful, an optimal equilibrium has empty promises; these are promises a player might not complete even if she remembers them. The corresponding optimal non-linear contract will "forgive" some failures. As players become more forgetful, they make more empty promises and devote more of their memories to monitoring.
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.