Focusing Attention in Multiple Tasks

Maximilian F.X. Breu (Ludwig Maximilians University (Munich))

Abstract : With increasingly complex workplaces agents face a multitude of different tasks. Standard contract theory predicts similar complex contracts, however, actual contracts are simpler. In order to explain this puzzle I propose a model in which agents' limited attention leads to an instinctive focus on tasks with high outcome variation. This focus of attention leads to a countervailing effect, where despite optimal incentives for a rational agent, the focusing agent chooses the wrong allocation of effort. This provides a mechanism of findings in field studies. In order to prevent the agent from focusing too much on some tasks over others, the principal needs to assimilate the incentives. Thus even if all outcomes can be measured, the principal will not condition the optimal contract on all available information.

Hiring Family or Nonfamily Managers in Family Firms: a Multitask Model with Interdependence Between Economic and Non-economic Tasks

Jenny Kragl (EBS University of Business and Law)
Guoxian Xi (University of Trier )
Alberto Palermo (EBS University of Business and Law)
Joern Block (University of Trier)

Abstract : We present a multitask principal-agent model with economic and non-economic tasks to analyze top management hiring decisions in family firms. Our model shows that ability differences between family and nonfamily managers, the interdependence of economic and non-economic tasks, and difficulties in the measurement of non-economic tasks explain why either family or nonfamily managers are hired. We find that non-family managers are more likely hired when the managers' abilities don't differ strongly because the non-family manager is better at the economic task which can be more efficiently incentivized. If the economic and non-economic tasks are strong substitutes, a non-family manager will be hired at the cost of negligence of non-economic goals. However, hiring a family manager becomes optimal when the non-economic task can be measured better, the tasks become more complementary, and the family manager cares more strongly for the family firm. Our results contribute to the literature on top management hiring decisions in family firms which so far has not accounted for multitask settings, measurement problems and the interdependence between economic and non-economic tasks.

Relational Contracts, Multiple Agents and Correlated Performances

Ola Kvaløy (University of Stavanger)
Trond E. Olsen (Norwegain School of Economics)

Abstract : We analyze relational contracts between a principal and a set of risk neutral agents whose outputs are correlated. We first consider the case where individual outputs are non-observable, but where the agents' aggregate output can be observed. In this case, a team incentive scheme is optimal, where each agent is paid a bonus for aggregate output above a threshold. We show that if the team members' outputs are negatively correlated, more agents in the team can improve efficiency since the performance measure becomes more precise. We then consider the case where individual outputs are observable. A tournament scheme with a threshold is then optimal, where the threshold depends on an agent's relative performance. Finally, we compare the two cases and show that the principal may deliberately choose to organize production as a team where only aggregate output is observable. The team alternative is more likely to be superior under negatively correlated outputs.

Responsibility in Teams

Xinyu Li (University of Paderborn)
Wendelin Schnedler (University of Paderborn)

Abstract : This paper provides a rationale for why holding responsible fewer rather than more members of a team increases team success. Team members can freely coordinate on who should do what. The outside world cannot observe what happened within the team but only whether the team was successful or not. In case of failure, one or several members of the team may be sanctioned; their reputation or image may suffer or they may lose their yearly bonus. Sanctioning, however, cannot be arbitrary. A team member can appeal against unfair sanctions; sanctions are repelled if this team member did not violate any norm (or if this violation is unlikely). If the organization places little emphasis on protecting the right of "innocent" team members and team cohesion is low, holding the whole team formally responsible is optimal. Otherwise, assigning responsibility to one member is optimal.