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Bend Them but Don't Break Them: Passionate Workers, Skeptical Managers, and Decision Making in Organizations

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  • Omar A. Nayeem

Abstract

This paper explores the useful but delicate role of managerial skepticism in hierarchical knowledge-based organizations. In these settings, the decision-maker principal seeks advice from managers, who instruct expert frontline workers to acquire information. Given unverifiable information quality and private-valued agents, moral hazard and adverse selection arise with workers and managers, respectively. Pairing extremely passionate workers with moderately skeptical managers alleviates both problems; however, the degree of managerial skepticism must be finely tuned: too little skepticism fails to improve workers' incentives, while too much skepticism destroys workers' incentives altogether. Case studies from the high-tech industry support these insights.

Suggested Citation

  • Omar A. Nayeem, 2017. "Bend Them but Don't Break Them: Passionate Workers, Skeptical Managers, and Decision Making in Organizations," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 100-125, August.
    • Handle: RePEc:aea:aejmic:v:9:y:2017:i:3:p:100-125
    Note: DOI: 10.1257/mic.20150199
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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