On Delegation under Relational Contracts

The benefits and costs of different forms of job design have been analyzed in the literature yet. The focus has thereby mostly been on job designs under formal contracts between the parties. However, in the real world relational contracts - informal agreements sustained by the value of future relationships - play a role as important as formal ones. This paper therefore considers the advantages and disadvantages of two different kinds of job design, partial del- egation and complete delegation with specialization, when the parties make use of both, formal and informal agreements. It is found that many of the results derived in the absence of informal contracts will no longer hold, if these contracts become available.