Optimal Job Design in the Presence of Implicit Contracts

FEUNL Working Paper Series No. 551

36 Pages Posted: 7 Jan 2011

See all articles by Luis I. Vasconcelos

Luis I. Vasconcelos

New University of Lisbon - Faculdade de Economia

Arijit Mukherjee

Michigan State University

Date Written: December 31, 2010

Abstract

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.

Suggested Citation

Vasconcelos, Luis I. and Mukherjee, Arijit, Optimal Job Design in the Presence of Implicit Contracts (December 31, 2010). FEUNL Working Paper Series No. 551, Available at SSRN: https://ssrn.com/abstract=1735333 or http://dx.doi.org/10.2139/ssrn.1735333

Luis I. Vasconcelos (Contact Author)

New University of Lisbon - Faculdade de Economia ( email )

Campus de Campolide
Lisboa, 1099-032
Portugal
+35121380172 (Phone)

HOME PAGE: http://docentes.fe.unl.pt/~lipv064/

Arijit Mukherjee

Michigan State University ( email )

Marshall Adams Hall
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.amukherjee.net

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