Optimal Task Assignment and Aggregation

Anthony D. Nikias
SUNY at Binghamton

Richard A. Young
The Ohio State University

Abstract: This study examines optimal task assignment and optimal performance measurement under moral hazard in a two state setting where the agents are risk neutral and have limited liability. Both productive and incentive efficiency are affected by task assignment. We provide conditions under which the optimal task assignment is to assign broad or specialized tasks. We identify conditions under which aggregate and disaggregate performance measurement is optimal within the broad and specialized approaches to task assignment. Under a broad task assignment approach, disaggregate performance measurement is sometimes preferred by the principal to aggregate performance measurement. Under specialized task assignment, aggregate performance measurement is always optimal. Further, under conditions where disaggregate performance measurement is optimal under broad task assignment, the principal’s welfare is greater if she uses specialized task assignment. Thus, if the technology permits the principal to choose between broad or specialized task assignment, aggregate performance measures are always preferred.

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