Individual Accountability in Teams

We consider a team production problem in which the principal observes only the group output and not individual effort and in which the principal can only penalize an agent for poor performance if she has verifiable evidence that the agent in question did not fulfill his job assignment. In this environment, agents have an incentive to shirk. However, we show that by including monitoring in the agents' job assignments, the principal induces the agents to exert effort and achieves the first-best. In particular, even though equilibrium job assignments include monitoring, this serves only to provide incentives for effort, and agents do not engage in wasteful monitoring in equilibrium.