COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 797 "Quasirents, Influence and Organization Form" Paul R. Milgrom July 1986 When changing jobs is costly, efficient employment arrangements are characterized by
complex contracts, rather than simply wages. Under these contracts, workers are not
generally fully compensated for the effects of post-employment events or decisions. As a
consequence, if there is a central office executive with discretionary authority to make
decisions, employees will be led to waste valuable time in attempts to influence his
decisions. Efficient organization design balances these "influence costs"
against the benefits of improved appraisal, coordination, and planning that such an
executive can provide. Identifying influence costs requires first identifying the kinds of
decisions about which employees will care. We identify several: with efficient employment
contracts, employees prefer more on-the-job consumption and better opportunities to learn
and display their abilities and to acquire human capital. They also prefer to occupy jobs
where continuity of employment is particularly important to the employer, because such
jobs carry higher wages. Applications of our perspective, which focuses on influence
processes and the trade-off between influence costs and improved decisionmaking appears to
have wide and fruitful application to questions or organization theory, industrial
organization, contract theory, and related areas. |
