Incentives, Solidarity, and the Division of Labor
34 Pages Posted: 31 Aug 2007 Last revised: 13 May 2014
Date Written: August 2007
We consider a version of the Holmstrom-Milgrom linear agency model with two tasks, production and administration, where both the principal and the agent can devote effort to these tasks. We assume there are gains from specialization and the players have a preference for solidarity or cooperation. As the gains from specialization increase, eventually the principal prefers to hire the agent rather than performing both tasks herself. As these gains increase still further, the principal increasingly specializes in administration and in the limit there is a complete division of labor, where the agent does all the production work and the principal does all the administration. At the same time, the nature of the employment contract evolves from one based on solidarity to one based on incentives. We therefore formalize aspects of the thought of Smith, Marx, and Durkheim, who held that a division of labor leads to market-like arrangements and a deterioration in social relations.
Keywords: alienation, anomie, cooperation, division of labor, incentives, reciprocity, solidarity
JEL Classification: B12, B14, D86, L23, M52
Suggested Citation: Suggested Citation