Incentives, Solidarity, and the Division of Labor

Michael T. Rauh ()

No 2007-15, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: In this paper, we consider a version of the Holmstr¨om-Milgrom linear model with two tasks, production and administration, where performance is harder to measure in the latter. Both the principal and agent can devote effort to these tasks. We assume there are gains from specialization and that players have a preference for solidarity in work. As the gains from specialization increase, the principal eventually prefers to hire the agent solely for production purposes over autarky. As these gains increase still further, the principal increasingly specializes in administration and in the limit there is a complete division of labor. At the same time, the nature of the employment contract is transformed from one based on solidarity to one based on incentives. We therefore formalize aspects of the thought of Smith and Marx, who held that a division of labor leads to exchange and a deterioration in social relations.

Keywords: alienation; cooperation; division of labor; incentives; Marxism; reciprocity; solidarity (search for similar items in EconPapers)
JEL-codes: B12 B14 D86 L23 M52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-soc
Date: 2007-08
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