Decentralized Task Assignment and Centralized Contracting: On the Optimal Allocation of Authority
University of Mannheim
WHU - Otto Beisheim School of Management; WHU - Otto Beisheim School of Management - Chair of Theory of Organization
December 2, 2011
AAA 2012 Management Accounting Section (MAS) Meeting Paper
To provide efficient incentives, the three components of an incentive system (i.e., performance measurement, rewards, and the allocation of decision rights) need to be balanced against each other. In practice, the authority to decide on these components is frequently distributed across hierarchical levels, thus requiring to adjust centralized decisions with regard to decentralized authority. This paper investigates the centralized design of incentive contracts when decision authority with respect to the allocation of tasks is delegated to lower hierarchical levels. It provides an analysis of the optimal allocation of authority (i.e., 'who should be the boss') and considers the interdependencies between organizational design choices and the design of optimal incentives.
Number of Pages in PDF File: 41
Keywords: task assignment, incentives, decision right, authority, organizational structure
JEL Classification: M54, M41, L22working papers series
Date posted: August 15, 2011 ; Last revised: December 8, 2011
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