March 16, 2006
Relational Contract Theory and Job Design
Employees who have broad task assignments are more likely to feel part of a relationship with their employer than those who perform a single task. That's important when job performance is hard to verify, according to a new paper, Relational Contracts and Job Design, by Anja Schöttner (Humboldt University of Berlin, School of Business and Economics). She suggests that where it's hard to verify performance, broad task assignments may increase employees' incentives to perform well. Here's the abstract:
This paper analyzes optimal job design in a repeated principal-agent relationship when there is only one contractible and imperfect performance measure for three tasks whose contribution to firm value is non-verifiable. The tasks can be assigned to either one or two agents. Assigning an additional task to an agent strengthens his relational contract. Therefore, broad task assignments are optimal when the performance measure strongly distorts incentives for the two-task job. This is more likely to be the case if these two tasks are substitutes.
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