Organizational design
Subtitle: decision rights and incentive contacts / Susan Athey [and] John Roberts
Contributors: Roberts, John H. (John Heath), 1949-; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 01-12; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 01-12.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2001
Place of publication: Cambridge, MA
Language: eng
Number of pages: 13
Description: We explore the interaction between the allocation of decision rights over investment opportunities and the design of incentive contracts to induce unobservable effort in a multiagent, multitasking agency framework. These are linked in our model because the only available performance measures confound the two: the returns to investments are not directly observed by the principal, but instead affect the means of the signals on effort. In our model, the optimal effort-inducing incentives give very bad incentives for selecting investments, while providing incentives to make the right investment decisions is costly in terms of inducing effort. In this set-up, hierarchy can emerge endogenously, with one agent being given authority to decide about implementing projects developed by another. The agents then get very different incentive contracts. Other solutions may involve each agent being empowered to adopt projects he has developed or both having to agree before a project is accepted. Bringing in a third agent to make investment decisions may also be optimal.
Notes: Title from cover.

Includes bibliographical references (leaves 11-12).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.