Delegation of Task Allocation Authority and the Value of Communication when Performance Measures are Imperfect

44 Pages Posted: 6 Jun 2019

See all articles by Anna Rohlfing-Bastian

Anna Rohlfing-Bastian

Goethe University Frankfurt

Anja Schöttner

Humboldt University of Berlin - School of Business and Economics

Date Written: May 3, 2019

Abstract

We consider a team production process where two agents exert non-observable effort in their specialized tasks and an additional task needs to be assigned. After contracting, one agent becomes privately informed about whether he has a comparative cost advantage in the additional task. We investigate when the principal benefits from delegating task-allocation authority to the privately informed agent, implying that the team self-organizes the task assignment. We show that delegation allows the principal to resolve any problems due to private information on effort costs when they are verifiable ex-post. If costs are non-verifiable ex-post and the team performance measure exhibits congruency problems, the principal even wants to delegate more often than under verifiable effort costs. Moreover, we show that the benefit of communication between the privately informed agent and the principal crucially depends on the nature of the congruency problems encountered and that delegation may be preferred over truthful communication.

Keywords: Delegation, Communication, Incentive Contracts, Performance Measurement, Task Assignment

JEL Classification: D86, M41, M52

Suggested Citation

Rohlfing-Bastian, Anna and Schöttner, Anja, Delegation of Task Allocation Authority and the Value of Communication when Performance Measures are Imperfect (May 3, 2019). Available at SSRN: https://ssrn.com/abstract=3391112 or http://dx.doi.org/10.2139/ssrn.3391112

Anna Rohlfing-Bastian (Contact Author)

Goethe University Frankfurt

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

Anja Schöttner

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

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