Delegated job design

Abstract

We develop a theory of delegation within organizations where agents are privately informed about whether they should be engaged in exploitation or in exploration activities. Excessive delegation lead agents to inefficiently herd into exploration in an attempt to boost their market value. The theory is consistent with both high-delegation practices and practices where agents are assigned to activities. Our main result is that an agent should be delegated more the weaker career concerns, a variable that is made endogenous through the firm's technology and its degree of transparency. The theory sheds light on empirical regularities that are previously unexplained, such as a positive relation between wages and delegation, and delegation being more prevalent in closed environments or environments with long-term employment contracts.