Management Accounting Section Midyear Meeting

Delegation of Job Design and the Value of Communication with Imperfect Performance Measurement

• In Event: Performance Measurement and Evaluation (Mixed Methods)

Abstract

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

Authors

• Anna Rohlfing-Bastian, Goethe-Universität Frankfurt

• Anja Schöttner, Humboldt University Berlin