Incentives, reputation and the allocation of authority

Arbeitspapier

We address the question how much authority a principal should delegate to a manager with conflicting interests and uncertain ability in a context in which the manager has both compensation-based and reputational incentives. The optimal level of authority balances the value of the manager's decision-making expertise against the cost of ensuring that the manager uses his discretion productively. Reputational incentives reduce the necessary monetary incentives to discourage purely opportunistic behavior, but may cause the manager to pursue conservative courses of action to preserve his reputation. This undermines the benefits of delegating control, leading to decreased managerial authority and stronger monetary incentives. When the principal can commit to long-term contracts, she eliminates this conservative bias by rewarding a successful manager with greater future compensation and authority than would be optimal in a static setting. Early in the relationship the principal may delegate additional authority in order to screen for managers of high ability.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2979

Classification and Topics

• Classification: Wirtschaft ; Economics of Contract: Theory ; Transactional Relationships; Contracts and Reputation; Networks ; Organization of Production ; Personnel Economics: Compensation and Compensation Methods and Their Effects ; Personnel Economics: Labor Management
• Subject: agency problems ; delegation ; compensation contracts ; job design ; career concerns ; managerial conservatism ; Kooperative Führung ; Agency Theory ; Arbeitsgestaltung ; Prestige ; Leistungsanreiz ; Erwerbsverlauf ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Englmaier, Florian ; Filipi, Ales ; Singh, Ravi
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/38953
• Last update: 10.03.2025, 11:44 AM CET