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Organizing multiple related tasks into jobs: Diversification vs. competition

  • Baranchuk, Nina
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    Agency models of multiple tasks typically assume independent outcomes. We show that correlation between outcomes can generate both economy and diseconomy of scale through diversification and competition effects. Additionally, the optimal compensation is non-monotone if the correlation is large.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0165-1765(07)00387-4
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    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 99 (2008)
    Issue (Month): 3 (June)
    Pages: 599-603

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    Handle: RePEc:eee:ecolet:v:99:y:2008:i:3:p:599-603
    Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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    1. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March.
    2. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October.
    3. Rajesh Aggarwal & Andrew A. Samwick, 1996. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," NBER Working Papers 5648, National Bureau of Economic Research, Inc.
    4. Glenn MacDonald & Leslie M. Marx, 2001. "Adverse Specialization," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 864-899, August.
    5. Laux, Christian, 2001. "Limited-Liability and Incentive Contracting with Multiple Projects," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 514-26, Autumn.
    6. Eric Maskin & Yingyi Qian & Chenggang Xu, 2000. "Incentives, Information, and Organizational Form," Review of Economic Studies, Oxford University Press, vol. 67(2), pages 359-378.
    7. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
    8. Dewatripont, Mathias & Jewitt, Ian & Tirole, Jean, 2000. "Multitask agency problems: Focus and task clustering," European Economic Review, Elsevier, vol. 44(4-6), pages 869-877, May.
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