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Division of Labour and Directed Production

Author

Listed:
  • Ratto, Marisa

    () (Université Paris-Dauphine)

  • Schnedler, Wendelin

    () (University of Paderborn)

Abstract

We examine a situation where efforts on different tasks positively affect production but are not separately verifiable and where the manager (principal) and the worker (agent) have different ideas about how production should be carried out: agents prefer a less efficient way of production. We show that by dividing labour (assigning tasks to different agents and verifying that agents do not carry out tasks to which they are not assigned), it is possible for the principal to implement the efficient way of production. Colluding agents can undermine this implementation. However, if agents have different abilities, collusion can be prevented by a specific assignment of agents to tasks.

Suggested Citation

  • Ratto, Marisa & Schnedler, Wendelin, 2005. "Division of Labour and Directed Production," IZA Discussion Papers 1669, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp1669
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    References listed on IDEAS

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    1. Itoh, Hideshi, 1992. "Cooperation in Hierarchical Organizations: An Incentive Perspective," Journal of Law, Economics, and Organization, Oxford University Press, vol. 8(2), pages 321-345, April.
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    11. repec:rus:hseeco:124059 is not listed on IDEAS
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    More about this item

    Keywords

    specialisation; moral hazard; hidden action; job design;

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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