Complementarity, Task Assignment, and Incentives

Abstract

This paper studies the effect of complementarity on task assignment decisions and the design of optimal incentives for employees in charge of multiple tasks. A principal hires two identical agents. Each agent performs two tasks involving complementarities when the tasks vary in the informativeness of their performance measures. The principal tension governing how tasks are assigned lies between the heterogeneity loss due to aggregate performance measures under broad task assignments and the resulting positive information externalities. Although the aggregate performance measures under broad task assignments preclude tailoring the strength of incentives to the nature of the task, these measures are more informative about agent efforts when tasks are complementary. This enhanced informativeness improves contracting efficiency by mitigating the implicit costs of the heterogeneity loss. The analysis applies not only to the task assignment decisions, but also more broadly to other organizational structure decisions.

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