This paper explores the useful but delicate role of managerial skepticism in hierarchical knowledge-based organizations. In these settings, the decision-maker principal seeks advice from managers, who instruct expert frontline workers to acquire information. Given unverifiable information quality and private-valued agents, moral hazard and adverse selection arise with workers and managers, respectively. Pairing extremely passionate workers with moderately skeptical managers alleviates both problems; however, the degree of managerial skepticism must be finely tuned: too little skepticism fails to improve workers' incentives, while too much skepticism destroys workers' incentives altogether. Case studies from the high-tech industry support these insights.
"Bend Them but Don't Break Them: Passionate Workers, Skeptical Managers, and Decision Making in Organizations."
American Economic Journal: Microeconomics,
Organizational Behavior; Transaction Costs; Property Rights
Asymmetric and Private Information; Mechanism Design
Personnel Management; Executives; Executive Compensation
Personnel Economics: Firm Employment Decisions; Promotions