We investigate the hypothesis that the combination of three related innovations—1) information technology (IT), 2) complementary workplace reorganization, and 3) new products and services — constitute a signi�cant skill-biased technical change affecting labor demand in the United States. Using detailed �rm-level data, we �nd evidence of complementarities among all three of these innovations in factor demand and productivity regressions. In addition, �rms that adopt these innovations tend to use more skilled labor. The effects of IT on labor demand are greater when IT is combined with the particular organizational investments we identify, highlighting the importance of IT-enabled organizational change. I.

orporate governance is generally considered to be the set of complementary mechanisms that help align the actions and choices of managers with the interests of shareholders. Monitoring actions by the board of directors, debtholders, or

Performance measurement is an essential part of the design of any incentive system. The strength and value of incentives in organizations are strongly affected by the performance measures available. Yet, the characteristics of valuable performance measures have not been well explored in the agency literature. In this paper, I use a multi-task model to develop a two-parameter characterization of performance measures and show how these two parameters—distortion and risk—affect the value and use of performance measures in incentive contracts. I show that many complex issues in the design of real world incentive contracts can be fruitfully viewed as trade-offs between these two features of performance measures. I also use this framework to analyze the provision of incentives in several specific environments, including R&D labs and non-profit organizations.

Economists have written extensively on this question, often focusing on various types of incentive pay contracts aimed at eliciting greater effort from employees. This theoretical research identifies features of employment relationships that limit the effectiveness of simple piece-rate incentive pay plans and that force managers to consider other forms of incentive pay. In addition, managers introduce other human resource management practices, concerning employee training, hiring criteria, teamwork, job design, and employee hierarchies, that are aimed at eliciting optimal performance (see reviews in Gibbons, 1998; Gibbons and Waldman, 1999; Lazear, 1999; Murphy, 1999; and Prendergast, 1999). Still, without empirical evidence on businesses ’ human resource practices, it will remain an open question whether the theories proposed in “personnel economics [are] real or merely a series of clever models proposed by abstract thinkers who have little contact with reality ” (Lazear, 1999). In this study, we describe a new research approach – an approach we label “insider econometrics ” – that is aimed at producing empirical estimates of the value of alternative human resource management practices. This “insider ” approach goes deep

Infusing hierarchies with elements of market control has become a much-used way of simultaneously increasing entrepreneurialism and motivation in firms. However, this paper argues that such “internal hybrids, ” particularly in their radical forms, are inherently hard to successfully design and implement because of a fundamental incentive problem of establishing credible managerial commitments to not intervene in delegated decision making. This theme is developed and illustrated, using the case of the world-leading hearing aids producer, Oticon. In the beginning of the 1990s, Oticon became famous for its radical internal hybrid, the “spaghetti organization. ” Recent work has interpreted the spaghetti organization as a radical attempt to foster dynamic capabilities by organizational means, neglecting, however, that about a decade later the spaghetti organization has given way to a more traditional matrix organization. In contrast, an organizational economics interpretation of Oticon organizational changes is developed. This lens suggests that a strong liability of the spaghetti organization was the above incentive problem: Frequent managerial meddling with delegated rights led to a severe loss of motivation, and arguably caused the change to a more structured organization. Refutable implications are developed, and the discussion is broadened to more general issues of economic organization.

Management research on diversity, heterogeneity, dissimilarity, and related concepts of within unit differences in organizations has proliferated in the past decade. However, few clear or consistent findings have emerged. We argue that the nature of these difference-based constructs requires closer examination. Using diversity as an overarching term, we contend that it has three distinctive types: separation, variety, or disparity. Failure to recognize the unique meaning, maximum shape, and assumptions underlying each type has held back theory development and contributed to mismatched operationalizations and research design. After presenting our diversity typology, we present guidelines for conceptualization, measurement, and theory testing, highlighting the special case of demographic diversity.

In the reported experiment different payment schemes are examined on their incentive effects. Payment based on individual, team and relative performance are compared. Subjects conducted computerized tasks that required substantial effort. The results show that individual and team payment induced the same effort levels. In team production free-riding occurred, but it was compensated by many subjects providing more effort than in case of individual pay. Effort was higher, but more variable in tournaments, while in case of varying abilities workers with relatively low ability worked very hard and drove up effort of the others. Finally, attitudes towards work and other workers differed strongly between conditions. Keywords: payment schemes, experiment JEL: J3, J33 July 1999 Address: Faculty of Economics and Econometrics University of Amsterdam Roetersstr. 11, 1018 WB Amsterdam The Netherlands tel. +31-205254126 fax.+31-205255283 e-mail: CREED@fee.uva.nl *Financial support by th...

Abstract: It is standard in agency theory to search for incentive-compatible mechanisms on the assumption that people care only about their own material wealth. Yet it may be useful to consider social preferences in mechanism design and contract theory. We devise an experiment to explore optimal contracts in an adverse-selection context. A principal offers one of three possible contract menus to a team of two agents of unknown types. We observe numerous rejections of the more lopsided menus, and approach an equilibrium where one of the more equitable menus (which one depends on the reservation payoffs) is proposed and agents accept a contract, selecting actions according to their types. We estimate the Fehr and Schmidt (1999) and Charness and Rabin (2002) models of social preferences with our data, and calculate ex post optimal socialpreference contracts. In both cases, the principal could substantially enhance his profitability if he could offer the derived optimal contract menu. We also find evidence that an agent is substantially more likely to reject a contract menu if her teammate rejected a contract menu in the previous period, suggesting that agents may be learning social norms.

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In this paper I attempt to obtain new theoretical insights by combining the standard moral hazard models of principal-agent relationships with theories of other-regarding (inequity averse or status-seeking) preferences. In the benchmark principal-agent model, the principal and the agent are both risk neutral, while the agent is wealth constrained, and hence the basic tradeoff between incentives and rent extraction arises. I show that other-regarding preferences interact with incentives in nontrivial ways. In particular, the principal is in general worse off as the agent cares more about the well-being of the principal. I then extend the analysis to a multi-agent setting. When each agent cares about the well-being of the other agent, either a team contract or a relative performance contract is optimal even though there is no technological externality nor correlation. The extreme team contract is “fair ” and more likely to be optimal as actions become mutually observable. However, team contracts are never optimal when the agents are competitive or status-seeking.