Thursday, August 28, 2014

Will Cheaper Drones "Solve" the Principal/Agent Problem?

While Eric Snowden and friends worry about the costs of spying, new monitoring technologies also offer benefits.   This piece  discusses how drones are being introduced to patrol over nature parks to see if poachers are actively invading parts of a park.   Such information should help environmentalists to focus their enforcement efforts.  The big point here is that cheaper monitoring technology reduces the private information that agents have.  Such agents become aware that their actions are being monitored and this should reduce shirking and other forms of bad behavior.  This new information access should also affect contract design.

Years ago, Tom Hubbard wrote a QJE paper focused on how the trucking industry's contract design was affected by onboard truck GPS systems that relay to headquarters where the truck is at each point in time. Before such technology, these truckers had private information about their activity (had they gone to Vegas to gamble and go dancing) or were they actually driving their assigned route?  In such a case, the headquarters had to provide some incentive compatible bonus for actually delivering the goods on time.  With the new GPS system on board, the headquarters could just pay an hourly wage because the asymmetric information problem had vanished.

Other examples?  On midterms, teachers worry about cheating and must keep our eyes on the crowded classroom. If we could fly a drone, there would be even less cheating taking place.

For activities that take place out in the open with a spatial component, drones appear to have an edge in monitoring. I agree that if a bunch of guys are colluding by email that a drone won't spot this but if a group of workers in a field are goofing off then the drone will record this and when output is found to be low for that sector; the workers can't claim that there was "bad luck" as the cause for the low output because their lack of effort has been documented.

Will economists start to write papers about the benefits of "Big Brother"?   What are workers' rights to privacy?

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