Leadership Under Multitasking

Kohei Daido (Kwansei Gakuin University)
Takeshi Murooka (Osaka University)

Abstract : We study multitasking problems a la Holmstrom and Milgrom (1991) where an agent engages in both a contractible and a non-contractible tasks which are substitutes. In our model, there are two agents and there is asymmetric information about the value of the non-contractible task between the agents. The agents play a signaling game: after observing an informed agent's action (called a leader), an uninformed agent (called a follower) can choose their own action. In contrast to the previous literature, we show that a principal may provide the leader with a higher incentive to the contractible task in order for the agents to work more in the non-contractible task. Intuitively, the leader's action works akin to the literature on leading by example a la Hermalin (1998) in that the leader's higher effort in the non-contractible task enhances the credibility of the signal about the value of this task. In this case, the higher incentive for the leader to the contractible task makes it easier for the leader to send a credible signal. We provide the conditions for this result and discuss its economic implications.

Managing Authority and Incentives in Relational Contracts

Akifumi Ishihara (National Graduate Institute for Policy Studies)

Abstract : We consider a relational contracting model in which the parties choose whether to allocate authority either to the principal (centralization) or to the agent (delegation). The party who has authority chooses a project, and the agent exert effort to successfully execute the project. Under delegation, although the agent’s effort is motivated by his authority, the project selected by the agent may be inefficiently biased toward the agent’s favourite one to deter the agent’s deviation to his most favourite project. Consequently, delegation (centralization) is inclined to be optimal for the parties with low (high) discount factors.

Organizing for Change: the Optimality of Pro-changer Organizations

Hideshi Itoh (Waseda University)

Abstract : I study a decision process of an organization that faces a problem of choosing between the status quo project (``no change'') and the new project (``change''). The organization consists of a decision maker and an implementer. The implementer first chooses a costly effort to develop a new project (``idea generation'' or ``initiation''). If it is developed, the implementer chooses either to disclose or conceal the evidence to the decision maker. If the implementer discloses the evidence, the decision maker formally selects either the status quo project or the new project. Otherwise, only the status quo project is available. The implementer then chooses an implementation effort to execute the selected project (``idea implementation''). While both the decision maker and the implementer prefer the success of the implemented project to its failure, they have intrinsic and possibly divergent preferences over two projects. I show that the principal of the organization, who is unbiased, optimally chooses a pro-changer as a decision maker even though the implementer is also a pro-changer, and it is feasible to counter-balance the implementer's bias by hiring an anti-changer or to choose an unbiased decision maker who shares the same preferences as the principal.

Motivating Versus Funding

Nicolas Quérou (CNRS-LAMETA)
Antoine Soubeyran (AMSE)
Raphael Soubeyran (INRA-LAMETA)

Abstract : We consider a moral hazard problem where the agent's effort induces monetary costs, and limits on the agent's resource restrict his capability to exert effort. The optimal contract is, in some cases, a sharing contract and the principal provides the agent with an up-front financial transfer. Moreover, whereas incentives and transfer to the agent are substitutes in the case where he has sufficient wealth, they are complements when his wealth is limited. Also, if the agent can consume some of his wealth at the outset of the contractual arrangement, he can get all the surplus of the relationship.