The Insider Threat: An Economic Analysis of Monitoring Instruments

Abstract

We consider employees' incentives for working vs. engaging in criminal or destructive behavior that damages their employer or others. To prevent damages, organizations may want to deter such behavior entirely or at least mitigate it by using a mix of effort monitoring, monetary incentives, policing and ex ante screening of employees. In this setup, we derive optimal contracts and discuss what determines the optimal choice of monitoring instruments.