Organizational Design with Portable Skills

Luca Picariello

No 2/2017, Discussion Paper Series in Economics from Norwegian School of Economics, Department of Economics

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 (search for similar items in EconPapers)
JEL-codes: D86 J24 J54 M52 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-02-12
New Economics Papers: this item is included in nep-bec, nep-cta and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Organizational Design with Portable Skills (2019)
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