Optimal task assignments with loss-averse agents

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Abstract

This paper studies optimal task assignments in a setting where agents are expectation-based loss averse according to Köszegi and Rabin (2006, 2007) and are compensated according to an aggregated performance measure in which tasks are technologically independent. We show that the optimal task assignment is determined by a trade-off between paying lower compensation costs and restricting the set of implementable effort profiles under multitasking. We show that loss aversion combined with how much the marginal cost of effort in one task increases with the effort chosen in other tasks determines when multitasking saves on compensation costs, but results in an implementation problem.

Original languageEnglish
Pages (from-to)1-26
Number of pages26
JournalEuropean Economic Review
Volume105
DOIs
Publication statusPublished - Jun 2018
Externally publishedYes

Keywords

  • Complementarities
  • Expectation-based loss aversion
  • Implementation
  • Multitasking
  • Specialization

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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