Worker Trust in Management and Delegation in Organizations

Optimal Cartel Equilibria with Imperfect Monitoring

Kieron Meagher and Andrew Wait

The Journal of Law, Economics, and Organization, 2020, vol. 36, issue 3, 495-536

Abstract: Using a unique employee–establishment survey, we find a causal relationship between an individual employee’s trust of management and their decision-making rights (delegation). We utilize both fixed effects (FE) and instrumental variables to control for unobserved factors: establishment-level FE control for management quality, practices, culture, and other characteristics; our instruments of inherited trust in management, and trust of equivalent workers in a different but similar country address the possible endogeneity of employee trust. Across all specifications, we find that delegation to a worker is more likely if that employee trusts management. In our preferred model, which includes establishment FE and accounts for endogeneity, we find a 1 standard deviation (SD) increase in employee trust increases delegation by approximately 0.6 of 1 SD. Our results are robust to the inclusion of worker preferences for individualism (which favors delegation), incentives/bonuses, and alternative measures of decision authority. (JEL D23, L22, L23).

Date: 2020
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