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

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Author Info
Marisa Ratto () (Université Paris-Dauphine (SDFi))
Wendelin Schnedler () (University of Heidelberg, Department of Economics)

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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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Publisher 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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Related research
Keywords: specialization; job design; moral hazard; multitasking;

Find related papers by JEL classification:
D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
M54 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Labor Management
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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    Other versions:
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    Other versions:
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  11. Robert Gibbons & Kevin J. Murphy, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," NBER Working Papers 3792, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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