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Optimal job design in the presence of implicit contracts

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  • Luis Vasconcelos
  • Arijit Mukherjee

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.

Suggested Citation

  • Luis Vasconcelos & Arijit Mukherjee, 2010. "Optimal job design in the presence of implicit contracts," Nova SBE Working Paper Series wp551, Universidade Nova de Lisboa, Nova School of Business and Economics.
  • Handle: RePEc:unl:unlfep:wp551
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    Cited by:

    1. Saak, Alexander E., 2016. "Traceability and reputation in supply chains," International Journal of Production Economics, Elsevier, vol. 177(C), pages 149-162.
    2. Li, Jin & Mukherjee, Arijit & Vasconcelos, Luis, 2019. "Managing performance evaluation systems: Relational incentives in the presence of learning-by-shirking," Working Papers 2018-12, Michigan State University, Department of Economics.
    3. Balmaceda, Felipe, 2018. "Optimal task assignments with loss-averse agents," European Economic Review, Elsevier, vol. 105(C), pages 1-26.
    4. Balmaceda, Felipe, 2016. "Optimal task assignments," Games and Economic Behavior, Elsevier, vol. 98(C), pages 1-18.
    5. Hendrik Hakenes & Svetlana Katolnik, 2018. "Optimal Team Size and Overconfidence," Group Decision and Negotiation, Springer, vol. 27(4), pages 665-687, August.
    6. Matthias Fahn & Hendrik Hakenes, 2019. "Teamwork as a Self-Disciplining Device," American Economic Journal: Microeconomics, American Economic Association, vol. 11(4), pages 1-32, November.
    7. Joyee Deb & Jin Li & Arijit Mukherjee, 2015. "Relational Contracts with Subjective Peer Evaluations," Cowles Foundation Discussion Papers 1995, Cowles Foundation for Research in Economics, Yale University.
    8. Seongwuk Moon, 2018. "Skill development, bargaining power, and a theory of job design," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(2), pages 270-296, June.
    9. Kvaløy, Ola & Olsen, Trond E., 2013. "Teams and Tournaments in Relational Contracts," Discussion Papers 2013/13, Norwegian School of Economics, Department of Business and Management Science.
    10. Kvaløy, Ola & Olsen, Trond E., 2016. "Teams in Relational Contracts," Discussion Papers 2016/23, Norwegian School of Economics, Department of Business and Management Science.
    11. Bryson, Alex & Buraimo, Babatunde & Simmons, Rob, 2011. "Do salaries improve worker performance?," Labour Economics, Elsevier, vol. 18(4), pages 424-433, August.
    12. Charlene M. Kalenkoski & Gigi Foster, 2015. "Measuring the relative productivity of multitasking to sole-tasking in household production: experimental evidence," Applied Economics, Taylor & Francis Journals, vol. 47(18), pages 1847-1862, April.
    13. Arijit Mukherjee & Luis Vasconcelos, 2011. "Optimal job design in the presence of implicit contracts," RAND Journal of Economics, RAND Corporation, vol. 42(1), pages 44-69, March.
    14. Akifumi Ishihara, 2020. "On Multitasking and Job Design in Relational Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 68(4), pages 693-736, December.
    15. Kvaløy, Ola & Olsen, Trond E., 2020. "Balanced scorecards: a relational contract approach," Discussion Papers 2020/3, Norwegian School of Economics, Department of Business and Management Science.
    16. Bryson, Alex & Buraimo, Babatunde & Simmons, Rob, 2011. "Do salaries improve worker performance?," Labour Economics, Elsevier, vol. 18(4), pages 424-433, August.
    17. Shingo Ishiguro & Yosuke Yasuda, 2018. "Moral Hazard and Target Budgets," Discussion Papers in Economics and Business 18-03, Osaka University, Graduate School of Economics.
    18. Cici, Gjergji & Hendriock, Mario & Kempf, Alexander, 2018. "The impact of labor mobility restrictions on managerial actions: Evidence from the mutual fund industry," CFR Working Papers 18-01, University of Cologne, Centre for Financial Research (CFR).
    19. Katolnik, Svetlana & Hakenes, Hendrik, 2014. "On the Incentive Effect of Job Rotation," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100574, Verein für Socialpolitik / German Economic Association.

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