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Optimal Job Design In The Presence Of Implicit Contracts

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  • Vasconcelos, Luis
  • Mukherjee, Arijit

Abstract

We characterize the optimal job design in a multitasking environment when the firms rely on implicit incentive contracts (i.e., bonus payments). Two natural forms of job design are compared: (i) individual accountability, where each agent is assigned to a particular job and assumes full responsibility for its outcome; and (ii) team accountability, where a group of agents share responsibility for a job and are jointly accountable for its outcome. The key trade-off is that team accountability mitigates the multitasking problem but may weaken the implicit contracts. The optimal job design follows a cut-off rule: firms with high reputation concerns opt for team accountability, whereas firms with low reputation concerns opt for individual accountability. Team accountability is more likely the more acute the multitasking problem is. However, the cut-off rule need not hold if the firm combines implicit incentives with explicit pay-per-performance contracts. JEL codes:

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Bibliographic Info

Paper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp551.

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Length: 36 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:unl:unlfep:wp551

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  1. Prather, Larry J. & Middleton, Karen L., 2002. "Are N+1 heads better than one?: The case of mutual fund managers," Journal of Economic Behavior & Organization, Elsevier, vol. 47(1), pages 103-120, January.
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  3. Vasconcelos, Luis & Mukherjee, Arijit, 2010. "Optimal Job Design In The Presence Of Implicit Contracts," FEUNL Working Paper Series wp551, Universidade Nova de Lisboa, Faculdade de Economia.
  4. Massa, Massimo & Reuter, Jonathan & Zitzewitz, Eric, 2010. "When should firms share credit with employees? Evidence from anonymously managed mutual funds," Journal of Financial Economics, Elsevier, vol. 95(3), pages 400-424, March.
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  9. Jules H. van Binsbergen & Michael W. Brandt & Ralph S.J. Koijen, 2006. "Optimal Decentralized Investment Management," NBER Working Papers 12144, National Bureau of Economic Research, Inc.
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Cited by:
  1. Dr Alex Bryson, 2010. "Do Salaries Improve Worker Performance?," NIESR Discussion Papers 2738, National Institute of Economic and Social Research.
  2. Ola Kvaløy & Trond Olsen, 2014. "Teams and Tournaments in Relational Contracts," CESifo Working Paper Series 4783, CESifo Group Munich.
  3. Vasconcelos, Luis & Mukherjee, Arijit, 2010. "Optimal Job Design In The Presence Of Implicit Contracts," FEUNL Working Paper Series wp551, Universidade Nova de Lisboa, Faculdade de Economia.

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