No. 47: Delegation of job design and the value of communication with imperfect performance measurement

Abstract

We consider a multitask model with private, post-contract, pre-decision information and imperfect performance measurement and identify conditions under which the delegation of job design is preferred over centralization. A principal contracts with an agent who performs productive effort. After contracting, the agent becomes privately informed about his effort costs for performing one task. The principal can either decide centrally about the job design or delegate the decision whether to perform effort on this task to the agent. We find that delegation, although it entails a loss of control, can be preferred over centralization when the performance measure is incongruent. The principal may achieve a benchmark result with delegation that would be obtained with ex-ante observable effort costs. Moreover, we show that the benefit of communication in a centralized setting crucially depends on the nature of the congruity problem. Delegation may then be even preferred over communication-based centralization.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, WHU – Otto Beisheim School of Management, European School of Management and Technology in Berlin and Goethe University Frankfurt who share the same research agenda.