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

Abstract

Current business practices involve a shift from top-down job design towards bottom-up job crafting which gives employees the authority to design their jobs. This development has been particularly reinforced by the COVID-19 pandemic. While previous literature has found arguments for job crafting mainly based on psychological reasoning, we adopt an accounting perspective and show in a multitask agency model that the interplay of private information, moral hazard, and imperfect performance measurement can make the delegation of job design to an informed agent beneficial for the firm. 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 which tasks to include in the agent’s job (centralization) or delegate this decision to the agent (delegation). We find that delegation, although it entails a loss of control, can be preferred over centralization when the performance measure is incongruent, and obtain the same result as if costless communication between principal and agent was possible in a centralization setting. The principal may even achieve a benchmark result with delegation that would be obtained with ex-ante observable effort costs.