Organizational Design and Error Propagation: Theory and Experiment

Yves Breitmoser (yves.breitmoser@uni-bielefeld.de), Lian Xue (lianxue@whu.edu.cn), Jiwei Zheng (j.zheng18@lancaster.ac.uk) and Daniel Zizzo
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Yves Breitmoser: Department of Economics, Bielefeld University.
Lian Xue: Economics and Management School, Wuhan University.
Jiwei Zheng: Department of Economics, Lancaster University Management School

No 666, Discussion Papers Series from University of Queensland, School of Economics

Abstract: This paper explores the impact of incentives on employee performance in chain-type organizations, where workers’ efforts are interdependent on each other while the goals of all workers are aligned. Using a novel information chain game, we examine the role of incentive schemes and the procurement of costly additional information in promoting individual efforts that align with organizational goals. Our results indicate that incentivizing workers based on their own performance, and allowing them to verify information at low costs, leads to the best outcomes in chain-type organizations. This way, the firm’s profit and agents’ incomes can all be improved compared to incentivization based on the organizational goal. Additionally, we find that there is no close correlation between an individual’s own effort level and their elicited beliefs about the accuracy of the input coming from upstream agents. Our study provides valuable insights into the design of effective incentive schemes and error prevention strategies in chain-type organizations..

Keywords: information chains; errors; incentives; welfare; adaptive coding. (search for similar items in EconPapers)
JEL-codes: C72 C91 D83 (search for similar items in EconPapers)
Date: 2023-12
New Economics Papers: this item is included in nep-exp and nep-gth
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Persistent link: https://EconPapers.repec.org/RePEc:qld:uq2004:666

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