The Strategic Decentralization of Recruiting

Abstract : We propose a model of strategic delegation in professional labor markets with heterogeneous workers. A big firm, competing with fringe firms, decides whether to exercise its market power to suppress wages. Alternatively, it may choose to delegate hiring to agents (divisions), thereby committing to bid more fiercely for workers. This reduces the incentive for fringe firms of going toe-to-toe with the big firm. In equilibrium, the big firm chooses to delegate unless (a) it is too large, (b) not productive enough, or (c) too productive. While a more productive big firm delegates more often, the optimal number of agents it delegates to decreases in the big firm's productivity. The presence of big firms does not substantially lower social welfare, unless its size exceeds the tipping point beyond which it chooses not to delegate. The introduction of a minimum wage in a professional labor market induces the big firm to delegate more aggressively, increasing match quality. Thus, social welfare may increase despite a drop in employment.

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Incentive Contracts, Social Comparison and Organizational Design

Abstract : The role of organization structure has been of great interest to stakeholders interested in boosting firm productivity and profits. As organizational architecture affects the level of interaction among workers, who often realize heterogenous compensation for their effort, different processes of social comparison are likely to emerge under varying structures. This paper contributes to a nascent literature on these processes, investigating how firms' organizational choices are influenced by envy. It considers a principal-two agent model where ex-ante identical agents either work jointly in a single unit, or separately in different units of a firm. It is posited that envy arises only in the first case, and the paper derives the optimal organizational form depending on technology complementarity, envy, and financial constraints on the agents' side. It identifies conditions under which there is always a Nash equilibrium of the effort choice among the agents under joint production. The findings of the model are that while joint production can take advantage of technological complementarities, with unlimited liability, this advantage decreases with envy. When liability is limited, however, the envy effect moves in opposite direction and therefore with complementarity factor increase agents' effort level, such that joint production is always preferable for the principal. Furthermore, the paper shows that individual bonus schemes outperform group bonus schemes as long as rent is earned.

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Combining Social Choice and Matching Theory to Understand Institutional Stability

Abstract : In many organizations, members need to be assigned to certain positions, whether these are legislators to committees, executives to roles, or workers to teams. I show that these assignment problems lead to novel questions about institutional stability. Will the set of agents being assigned prefer or vote in favor of some alternative allocation over their current allocation thereby lobbying to reform the institution? I explore questions of institutional stability where the choice of the institution (i.e., the matching mechanism) is chosen and agreed upon by the very people who are assigned by the assignment procedure. I endogenize an institution's choice of assignment procedures by analyzing an important sub-case of social choice that I call a social allocation choice problem. I discuss a variety of voting rules (plurality, majority, and unanimity) and their institutional stability counterparts in matching theory (popular matching, majority stability, and pareto efficiency). The novel property of majority stability is introduced and its existence and robustness to correlated preferences and interdependent preferences are analyzed. Chains of envy are necessary to overcome the packing problem that arises in reallocating a majority to a new set of assignments under an alternative allocation. This makes majority stability, in sharp contrast to plurality rule, strikingly robust to correlated preferences.

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