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Too Few Cooks Spoil the Broth: Division of Labour and Directed Production

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  • Marisa Ratto

    ()
    (Université Paris-Dauphine (SDFi))

  • Wendelin Schnedler

    ()
    (University of Heidelberg, Department of Economics)

Abstract

How can a manager influence workers' activity while knowing little about it? This paper examines a situation where production requires several tasks, and the manager wants to direct production to achieve a preferred allocation of effort across tasks. However, the effort that is required for each task cannot be observed, and the production result is the only indicator of worker activity. This paper illustrates that in this situation, the manager cannot implement the preferred allocation with a single worker. On the other hand, the manager is able to implement the preferred allocation by inducing a game among several workers. Gains to workers from collusion may be eliminated by an ability-dependent, but potentially inefficient, task assignment. These findings provide a new explanation for the division of labor, and bureaucratic features such as "over"-specialization and "wrong" task allocation.

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Bibliographic Info

Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0468.

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Length: 20 pages
Date of creation: Jul 2008
Date of revision: Jul 2008
Handle: RePEc:awi:wpaper:0468

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Keywords: specialization; job design; moral hazard; multitasking;

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References

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  1. George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
  2. Gibbons, R. & Murphy, K.J., 1990. "Optimal Incentive Contracts In The Presence Of Career Concerns: Theory And Evidence," Working papers 563, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. 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).
  4. Gary S. Murphy Becker & Kevin M., 1992. "The Division of Labor, Coordination Costs, and Knowledge," University of Chicago - George G. Stigler Center for Study of Economy and State 79, Chicago - Center for Study of Economy and State.
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  6. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Canice Prendergast, 2003. "The Limits of Bureaucratic Efficiency," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 929-958, October.
  8. 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.
  9. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-36, May.
  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. 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.
  12. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
  13. Strausz, Roland, 1997. "Delegation of Monitoring in a Principal-Agent Relationship," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 337-57, July.
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Cited by:
  1. Christian Espinosa & Juan Gorigoitía & Carlos Maquieira, 2012. "Nonlinear behaviour of EMBI index:the case of eastern European countries," Working Papers 37, Facultad de Economía y Empresa, Universidad Diego Portales.

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