The Relationship Between Delegation and Incentives Across Occupations: Evidence and Theory

Abstract

A large literature, both theoretical and empirical, suggests that delegation of authority and incentives should have a positive relationship. Using data from a large cross section of British establishments, we show that the positive relationship between incentives and delegation that has been consistently documented in the empirical literature masks a stark difference between job types. We classify jobs into two categories: complex jobs include professional, technical and scientific occupations and simple jobs consist of all other occupations with a lower-level code in the Standard Occupational Classification (SOC) system. We find that for simple jobs, the relationship between delegation and incentives is positive as has been found in the previous literature, whereas for complex jobs it is negative. To explain this negative relationship for complex jobs, we develop a model where tasks have a risk-return tradeoff and where a single performance measure has to induce both task selection and effort. We find that if tasks vary sufficiently by risk and return and if effort is noisy to measure, then delegation and incentives have a negative relationship.