Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Organizational Design with Portable Skills.
Abstract: Workers can move across firms and take with them portable
skills. This has an impact on how firms are organized and allocate tasks
across workers. To reduce mobility, a profit maximizing firm may
inefficiently allocate talented workers on tasks that reduce their outside
option. In the existing literature, asymmetric information about workers'
talents makes this retention strategy profitable, although inefficient. In
this paper we let workers' skills be observable across firms, but task
allocation to be non-contractible. Inefficient assignment of tasks to
workers persists in this environment. We show that by organizing a firm as
an equity-partnership, in which the total profit is shared, the efficient
task allocation can be implemented and profit increased. This result is
attained through shifting control rights to workers that become partners
and decide over task allocation. Both partners and workers are retained in
equilibrium. This paper provides a new rationale for the widespread
presence of partnerships in human-capital intensive industries.
Keywords: Task Allocation; Retention; Compensation Contracts; Partnerships; (follow links to similar papers)
JEL-Codes: D86; J24; J54; M52; (follow links to similar papers)
40 pages, February 12, 2017
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