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Division of Labour and Directed Production

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  • Marisa Ratto

    ()
    (University of Bristol, Centre for Market and Public Organisations (CMPO))

  • Wendelin Schnedler

    ()
    (University of Heidelberg, Department of Economics)

Abstract

We examine a situation where efforts on different tasks positively affect production but are not separately verifiable and where the manager (principal) and the worker (agent) have different ideas about how production should be carried out: agents prefer a less efficient way of production. We show that by dividing labour (assigning tasks to different agents and verifying that agents do not carry out tasks to which they are not assigned), it is possible for the principal to implement the efficient way of production. Colluding agents can undermine this implementation. However, if agents have different abilities, collusion can be prevented by a specific assignment of agents to tasks.

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File URL: http://www.uni-heidelberg.de/md/awi/forschung/dp421.pdf
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Bibliographic Info

Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0421.

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Length: 23 pages
Date of creation: Jul 2005
Date of revision: Jul 2005
Handle: RePEc:awi:wpaper:0421

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Keywords: hidden action; moral hazard; specialisation; job design;

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  1. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, Department of Economics, University of Bristol, UK.
  2. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-36, May.
  3. Strausz, R., 1995. "Delegation of Monitoring in a Principal-Agent Relationship," Discussion Paper 1995-60, Tilburg University, Center for Economic Research.
  4. Gibbons, Robert & Murphy, Kevin J, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 468-505, June.
  5. Lindbeck, Assar & Snower, Dennis J., 1999. "Multi-Task Learning and the Reorganization of Work. From Tayloristic to Holistic Organization," IZA Discussion Papers 39, Institute for the Study of Labor (IZA).
  6. Dewatripont, Mathias & Jewitt, Ian & Tirole, Jean, 1999. "The Economics of Career Concerns, Part II: Application to Missions and Accountability of Government Agencies," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 199-217, January.
  7. Jean Tirole, 1985. "Hierarchies and Bureaucracies," Working papers 363, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 285-300, Summer.
  9. Becker, G.S. & Murphy, K.M., 1991. "The Division of Labor, Coordination Costs, and Knowledge," University of Chicago - Economics Research Center 92-5, Chicago - Economics Research Center.
  10. Susan Athey & John Roberts, 2001. "Organizational Design: Decision Rights and Incentive Contracts," American Economic Review, American Economic Association, vol. 91(2), pages 200-205, May.
  11. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
  12. Itoh, Hideshi, 1992. "Cooperation in Hierarchical Organizations: An Incentive Perspective," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 321-45, April.
  13. repec:rus:hseeco:124059 is not listed on IDEAS
  14. Canice Prendergast, 2003. "The Limits of Bureaucratic Efficiency," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 929-958, October.
  15. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
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