Paper ID

3481

Description

App-based monitoring is widely used in online labor markets to reduce information asymmetry between firms and contractors. Such monitoring apps provide employers with detailed information on contractors’ work progress and effort level. A unique characteristic of app-based monitoring systems is that, due to online privacy regulations, contractors are informed of their presence and explicitly agree to their installation as a condition for participating in online labor markets. This study extends the existing theory on monitoring by analyzing how this awareness of monitoring could affect contractors’ strategic behavior. We show that, by providing a new way of signaling to contractors, app-based monitoring can dramatically change contractors’ wage quotes and effort level in equilibrium. In some cases, the high ability contractor proposes zero wage and the first best effort level, i.e., the effort from the complete information case, to signal his ability. Under certain conditions, the market outcome could reach the first best.

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Online Labor Market Signaling with App-based Monitoring

App-based monitoring is widely used in online labor markets to reduce information asymmetry between firms and contractors. Such monitoring apps provide employers with detailed information on contractors’ work progress and effort level. A unique characteristic of app-based monitoring systems is that, due to online privacy regulations, contractors are informed of their presence and explicitly agree to their installation as a condition for participating in online labor markets. This study extends the existing theory on monitoring by analyzing how this awareness of monitoring could affect contractors’ strategic behavior. We show that, by providing a new way of signaling to contractors, app-based monitoring can dramatically change contractors’ wage quotes and effort level in equilibrium. In some cases, the high ability contractor proposes zero wage and the first best effort level, i.e., the effort from the complete information case, to signal his ability. Under certain conditions, the market outcome could reach the first best.