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Organizing multiple related tasks into jobs: Diversification vs. competition

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  • Baranchuk, Nina
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    Abstract

    Agency models of multiple tasks typically assume independent outcomes. We show that correlation between outcomes can generate both economy and diseconomy of scale through diversification and competition effects. Additionally, the optimal compensation is non-monotone if the correlation is large.

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    File URL: http://www.sciencedirect.com/science/article/B6V84-4PW5XFY-9/1/32aef59964095fa5e3cf3d4c1f3591b0
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    Bibliographic Info

    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 99 (2008)
    Issue (Month): 3 (June)
    Pages: 599-603

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    Handle: RePEc:eee:ecolet:v:99:y:2008:i:3:p:599-603

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    Web page: http://www.elsevier.com/locate/ecolet

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    1. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October.
    2. Maskin, Eric & Qian, Yingyi & Xu, Chenggang, 2000. "Incentives, Information, and Organizational Form," Review of Economic Studies, Wiley Blackwell, vol. 67(2), pages 359-78, April.
    3. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
    4. Glenn MacDonald & Leslie M. Marx, 2001. "Adverse Specialization," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 864-899, August.
    5. Laux, Christian, 2001. "Limited-Liability and Incentive Contracting with Multiple Projects," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 514-26, Autumn.
    6. Dewatripont, Mathias & Jewitt, Ian & Tirole, Jean, 2000. "Multitask agency problems: Focus and task clustering," European Economic Review, Elsevier, vol. 44(4-6), pages 869-877, May.
    7. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(6), pages 1999-2043, December.
    8. Bengt Holmstrom & Paul R. Milgrom, 1985. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Cowles Foundation Discussion Papers 742, Cowles Foundation for Research in Economics, Yale University.
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    Cited by:
    1. Bourjade, Sylvain & Schindele, Ibolya, 2011. "The role of agency costs in financial conglomeration," MPRA Paper 34815, University Library of Munich, Germany.

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