Job Assignments under Moral Hazard - School of Economics and ...

2.4 Discussion: Biases in hierarchical job assignments
Proposition 1 tells us that we can expect an inefficient job assignment threshold to be
the norm. The direction of the bias depends on which job is (locally) more informative
about effort for an agent who is equally productive in both jobs. Two cases therefore
may arise:
(i) If job h is the (locally) more informative job, employees with θ ∈ (θ SB , θ F B ) are
assigned to job h for which they are “underqualified”.
(ii) If job l is the (locally) more informative job, employees with θ ∈ (θ F B , θ SB ) are
passed over for assignment to job h, even though they are “overqualified” for the
job l in which they are placed.
The issue of underqualification has received considerable attention in the literature on
careers in organizations. So under what circumstances it is reasonable to apply our
model to the underqualification case? 10 One channel through which higher level jobs may
become more informative about effort is that higher level jobs may be more sensitive to
effort than lower level ones. Lower level jobs often entail ‘safe’ tasks that have relatively
low demands in terms of worker inputs ability and effort. Because workers cannot do
much harm here, firms assign to such jobs individuals with low expected ability (e.g.
Calvo and Wellisz 1979, Rosen 1982, Waldman 1984b). In contrast, higher level jobs
tend to be more sensitive to workers’ inputs, and firms therefore assign to such positions
only workers with sufficiently high ability.
In our model, Condition (SA) captures the notion that job h is more sensitive to ability
than job l. In the context of a hierarchy, job h would hence be at a higher level than
job l. The property that higher level jobs are more sensitive to effort can be captured
in our setting by fh(ē, θ) − fh(e, θ) > fl(ē) − fl(e). This says that high effort in job h
raises the success probability of the project more than in job l. This sensitivity to effort
condition implies that
fh(e, ˆ θ(ē, ē)) < fl(e), (Condition 2)
because fh(ē, ˆ θ(ē, ē)) = fl(ē). If this condition is met, a consequence of our earlier
analysis is that the principal sets the threshold for assignment to job h too low: θ SB <
θ F B . In other words, the principal biases the job assignment threshold in favor of the
higher level job h.
Condition 2 has an intuitive interpretation: An agent who is almost equally productive
in both hierarchy levels l and h if he works hard (i.e., with ability level close to the
10 That jobs further up in the hierarchy are often more informative about an employee’s inputs is a
view that can also be found in the literature (Baker, Gibbons, and Murphy 1994, Maskin, Qian, and
Xu 2000, Ortega 2003).
11