Optimal Job Design in the Presence of Implicit Contracts
FEUNL Working Paper Series No. 551
36 Pages Posted: 7 Jan 2011
Date Written: December 31, 2010
We characterize the optimal job design in a multitasking environment when the firms rely on implicit incentive contracts (i.e., bonus payments). Two natural forms of job design are compared: (i) individual accountability, where each agent is assigned to a particular job and assumes full responsibility for its outcome; and (ii) team accountability, where a group of agents share responsibility for a job and are jointly accountable for its outcome. The key trade-o¤ is that team accountability mitigates the multitasking problem but may weaken the implicit contracts. The optimal job design follows a cut-off rule: firms with high reputation concerns opt for team accountability, whereas firms with low reputation concerns opt for individual accountability. Team accountability is more likely the more acute the multitasking problem is. However, the cut-o¤ rule need not hold if the firm combines implicit incentives with explicit pay-per-performance contracts.
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