Delegation, Skills Acquisition and Turnover Costs
Posted: 29 Jan 2009
Date Written: January, 27 2009
The delegation of tasks to a subordinate and his access to key firm resources allow an organization to make optimal use of his knowledge and ability, but at the same time, thanks to on-the-job learning and the possibility of expropriation of these resources, this might increase the agent's outside options. We model these risks as an increase in the quit propensity of the agent which determines higher turnover costs for the firm. The choice of the degree of delegation a principal offers to her subordinate is analyzed taking into account its benefits and costs. We show that the level of delegation is influenced by the principal's and the agent's abilities, but it is lower the higher turnover costs are and the lower the degree of specificity of human capital is or the higher the degree of expropriability of resources is. Finally, bureaucratic rules establishing the documentation of the agent's activity are seen as a device to reduce turnover costs and to allow more delegation.
Keywords: organizational design, delegation, human capital, turnover costs, bureaucracy
JEL Classification: M54, L22, J63
Suggested Citation: Suggested Citation