Decentralized Task Assignment and Centralized Contracting: On the Optimal Allocation of Authority

Posted: 15 Aug 2011 Last revised: 12 Feb 2014

See all articles by Steffen Reichmann

Steffen Reichmann

University of Mannheim

Anna Rohlfing-Bastian

Goethe University Frankfurt

Date Written: December 2, 2011

Abstract

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 adjusting 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.

Keywords: task assignment, incentives, decision right, authority, organizational structure

JEL Classification: M54, M41, L22

Suggested Citation

Reichmann, Steffen and Rohlfing-Bastian, Anna, Decentralized Task Assignment and Centralized Contracting: On the Optimal Allocation of Authority (December 2, 2011). Journal of Management Accounting Research, Vol. 26, No. 1, 2014, Available at SSRN: https://ssrn.com/abstract=1909985 or http://dx.doi.org/10.2139/ssrn.1909985

Steffen Reichmann

University of Mannheim ( email )

Germany

Anna Rohlfing-Bastian (Contact Author)

Goethe University Frankfurt

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, 60629
Germany

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