American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Bend Them but Don't Break Them: Passionate Workers, Skeptical Managers, and Decision Making in Organizations
American Economic Journal: Microeconomics
vol. 9,
no. 3, August 2017
(pp. 100–125)
Abstract
This paper explores the useful but delicate role of managerial skepticism in hierarchical knowledge-based organizations. In these settings, the decision-maker principal seeks advice from managers, who instruct expert frontline workers to acquire information. Given unverifiable information quality and private-valued agents, moral hazard and adverse selection arise with workers and managers, respectively. Pairing extremely passionate workers with moderately skeptical managers alleviates both problems; however, the degree of managerial skepticism must be finely tuned: too little skepticism fails to improve workers' incentives, while too much skepticism destroys workers' incentives altogether. Case studies from the high-tech industry support these insights.Citation
Nayeem, Omar A. 2017. "Bend Them but Don't Break Them: Passionate Workers, Skeptical Managers, and Decision Making in Organizations." American Economic Journal: Microeconomics, 9 (3): 100–125. DOI: 10.1257/mic.20150199Additional Materials
JEL Classification
- D23 Organizational Behavior; Transaction Costs; Property Rights
- D82 Asymmetric and Private Information; Mechanism Design
- M12 Personnel Management; Executives; Executive Compensation
- M51 Personnel Economics: Firm Employment Decisions; Promotions
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