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This chapter reviews and extends the literature on incentives in large organisations, applying it to the work of aid agencies in general and the European Commission's own foreign aid programme in particular.It identifies the main predicament of such organisations as a lack of direct answerability to beneficiaries, accountability to a multiplicity of donors, and a major difficulty in monitoring the quality with which certain important tasks are performed.The result is an excessive focus upon input-related tasks (budgets, personnel) and insufficient attention to the quality of the aid projects undertaken.The question arises to what extent these are inevitable given the constraints on an aid agency, and to what extent they can be alleviated by intelligent organisational design.The chapter therefore reviews the literature on principal-agent models, particularly those with multiple principals and multiple tasks performed by each agent.It then presents a two-period model of the allocation of multiple tasks within a bureaucratic organization.It shows that the incentives for bundling and separation of tasks within such an organization depend on the relative ease of monitoring of the two tasks, as well as on the extent of correlation between the talents they require.It demonstrates that organizations may rationally place ''too much'' emphasis on routine tasks, provided these reveal information about talents that may be valuable in non-routine tasks, and in spite of the fact that the incentives to perform the non-routine tasks well will thereby be blunted.Applications to the work of the European Commission, and policy implications, are extensively discussed.
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