The interaction of task and asset allocation

Abstract

I model the allocation of tasks and assets to examine the interplay between these organizational design decisions. A principal delegates at least one of two tasks to an agent. The agent may take ownership of the asset and is compensated according to the optimal linear incentive contract on one imperfect performance measure. In general, the principal weighs a multi-task problem (if both tasks delegated) against a double moral hazard problem (if one task retained). I show that delegation of both tasks tends to go hand in hand with agent asset ownership, while principal asset ownership tends to accompany retention of one task. The former configuration is preferred to the latter when the double moral hazard problem is severe relative to the multi-task problem. When the potentially retained task has little effect on the asset value, a third optimal configuration arises, in which one task is retained by the principal, but the agent owns the asset.