In a team subject to adverse selection and moral hazard, McAfee and Mc
Millan found in their 1991 paper, surprisingly, that under certain con
ditions, the outcome is unaffected whether the principal observes only
total output or whether the principal can observe each person's indiv
idual contribution to the production of the output. This leads McAfee
and McMillan to conclude that the purpose of monitoring is to discipli
ne the monitor. However, when team members are risk averse, the princi
pal can benefit by monitoring.