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Hidden action, identification and organisation design

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  • Wendelin Schnedler

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Abstract

Incentives often fail in inducing economic agents to engage in a desirable activity; implementability is restricted. What restricts implementability? When does re-organization help to overcome this restriction? This paper shows that any restriction of implementability is caused by an identification problem. It also describes organizations that can solve this identfication problem and provides conditions under which such organisations exist. Applying the findings to established and new moral hazard models yields insights into optimal organization design, uncovers the reason why certain organization designs, such as advocacy or specialization, overcome restricted implementability, and formalizes a widespread type of multi-tasking problem.

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File URL: http://www.bristol.ac.uk/cmpo/publications/papers/2010/wp250.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 10/250.

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Length: 38 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:bri:cmpowp:10/250

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Keywords: moral hazard; hidden action; implementation; multi-tasking; identification by organisation design;

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  1. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, edition 2, number 9780199243273, Octomber.
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Cited by:
  1. Schöttner, Anja & Kragl, Jenny, 2013. "Wage Floors, Imperfect Performance Measures, and Optimal Job Design," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79941, Verein für Socialpolitik / German Economic Association.

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