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Delegated Job Design

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  • Hvide, Hans K
  • Kaplan, Todd

Abstract

Why do firms delegate job design decisions to workers, and what are the implications of such delegation? We develop a private-information based theory of delegation, where delegation enables high-ability workers to signal their ability by choosing difficult tasks. Such signalling provides a more efficient allocation of talent inside the firm, but at the cost that low-ability workers must be compensated to be willing to self-sort. Career concerns put a limit to the efficiency of delegation: when market observability of job content is high, the compensation needed to get low ability workers to self-sort is high, and firms limit delegation to avoid cream-skimming of the high-ability workers. We investigate implications of the theory for how misallocation of talent within firms may occur and to the design optimal incentive contracts.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3907.

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Date of creation: Apr 2003
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Handle: RePEc:cpr:ceprdp:3907

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Keywords: career concerns; delegation; discretion; peter principle; sun hydraulics;

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