  Many modern organisations employ methods which involve monitoring of
employees' actions in order to encourage teamwork in the workplace. While
monitoring promotes a transparent working environment, the effects of making
monitoring itself transparent may be ambiguous and have received surprisingly
little attention in the literature. Using a novel laboratory experiment, we
create a working environment in which first movers can (or cannot) observe
second mover's monitoring at the end of a round. Our framework consists of a
standard repeated sequential Prisoner's Dilemma, where the second mover can
observe the choices made by first movers either exogenously or endogenously. We
show that mutual cooperation occurs significantly more frequently when
monitoring is made transparent. Additionally, our results highlight the key
role of conditional cooperators (who are more likely to monitor) in promoting
teamwork. Overall, the observed cooperation enhancing effects are due to
monitoring actions that carry information about first movers who use it to
better screen the type of their co-player and thereby reduce the risk of being
exploited.
