In this paper, we consider a version of the Holmstr¨om-Milgrom linear model with two tasks, production and administration, where performance is harder to measure in the latter. Both the principal and agent can devote effort to these tasks. We assume there are gains from specialization and that players have a preference for solidarity in work. As the gains from specialization increase, the principal eventually prefers to hire the agent solely for production purposes over autarky. As these gains increase still further, the principal increasingly specializes in administration and in the limit there is a complete division of labor. At the same time, the nature of the employment contract is transformed from one based on solidarity to one based on incentives. We therefore formalize aspects of the thought of Smith and Marx, who held that a division of labor leads to exchange and a deterioration in social relations.
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Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number
2007-15.
Find related papers by JEL classification: B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith) B14 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Socialist; Marxist D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
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Ernst Fehr & Alexander Klein & Klaus M Schmidt, 2007.
"Fairness and Contract Design,"
Econometrica,
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Other versions:
Ernst Fehr & Alexander Klein & Klaus M. Schmidt, 2005.
"Fairness and Contract Design,"
Discussion Papers
67, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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George J. Mailath & Andrew Postlewaite, 2006.
"Social Assets,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1057-1091, November.
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Other versions:
George J. Mailath & Andrew Postlewaite, 2002.
"Social Assets,"
PIER Working Paper Archive
04-025, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 04 Jun 2004.
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George J. Mailath & Andrew Postlewaite, 2002.
"Social Assets,"
PIER Working Paper Archive
06-003, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 04 Jun 2004.
[Downloadable!]