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On Delegation under Relational Contracts

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  • Oliver Gürtler
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    Abstract

    The benefits and costs of different forms of job design have been analyzed in the literature yet. The focus has thereby mostly been on job designs under formal contracts between the parties. However, in the real world relational contracts - informal agreements sustained by the value of future relationships - play a role as important as formal ones. This paper therefore considers the advantages and disadvantages of two different kinds of job design, partial del- egation and complete delegation with specialization, when the parties make use of both, formal and informal agreements. It is found that many of the results derived in the absence of informal contracts will no longer hold, if these contracts become available.

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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse32_2005.

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    Length: 35
    Date of creation: Oct 2005
    Date of revision:
    Handle: RePEc:bon:bonedp:bgse32_2005

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    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

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    Keywords: Job design; relational contracts; formal contracts; delegation;

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    1. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
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    9. Luis Rayo, 2002. "Relational Team Incentives and Ownership," Theory workshop papers 357966000000000087, UCLA Department of Economics.
    10. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1125-56, November.
    11. Nahum Melumad & Dilip Mookherjee & Stefan Reichelstein, 1997. "Contract Complexity, Incentives, and the Value of Delegation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 257-289, 06.
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    13. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
    14. Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
    15. Hideshi Itoh & Hodaka Morita, 2006. "Formal Contracts, Relational Contracts, and the Holdup Problem," CESifo Working Paper Series 1786, CESifo Group Munich.
    16. Pearce, David G. & Stacchetti, Ennio, 1998. "The Interaction of Implicit and Explicit Contracts in Repeated Agency," Games and Economic Behavior, Elsevier, vol. 23(1), pages 75-96, April.
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