Private Compensation and Organizational Design

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review

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Detail(s)

Original languageEnglish
Number of pages66
Publication statusPublished - 8 Jan 2022

Conference

Title2022 American Economic Association Annual Meeting
LocationVirtual
PlaceUnited States
CityBoston
Period7 - 9 January 2022

Abstract

Most of the literature on organizational design and incentives assumes public contracting. Yet most real world compensation contracts are private information, observed only by their direct signatories. This matters when agents work together to produce a joint output, because they care about each others’ incentives. In this case, the principal can gain from designating one agent “team leader,” with authority to decide, and hence observe, all the bonuses. Such “outsourcing” of contracting is never optimal with fully public contracts. With private contracts, by contrast, it raises effort by reassuring agents that the incentives provided are sufficiently strong; but it distorts effort allocation, as the team leader takes too much of the compensation budget. Even when observability is held constant, pay delegation can raise output by skewing bonuses towards more productive agents.

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Citation Format(s)

Private Compensation and Organizational Design. / BUFFA, Andrea M.; LIU, Qing; WHITE, Lucy.

2022. Paper presented at 2022 American Economic Association Annual Meeting, Boston, Massachusetts, United States.

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review