DP3907 Delegated Job Design
|Author(s):||Hans K Hvide, Todd Kaplan|
|Publication Date:||April 2003|
|Keyword(s):||career concerns, delegation, discretion, peter principle, sun hydraulics|
|JEL(s):||C72, D23, D44, D82, J33, M12|
|Programme Areas:||Labour Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3907|
Why do firms delegate job design decisions to workers, and what are the implications of such delegation? We develop a private-information based theory of delegation, where delegation enables high-ability workers to signal their ability by choosing difficult tasks. Such signalling provides a more efficient allocation of talent inside the firm, but at the cost that low-ability workers must be compensated to be willing to self-sort. Career concerns put a limit to the efficiency of delegation: when market observability of job content is high, the compensation needed to get low ability workers to self-sort is high, and firms limit delegation to avoid cream-skimming of the high-ability workers. We investigate implications of the theory for how misallocation of talent within firms may occur and to the design optimal incentive contracts.