Relational Contracts and Job Design

This paper analyzes optimal job design in a repeated principal-agent relationship when there is only one contractible and imperfect performance measure for three tasks whose contribution to firm value is non-verifiable. The tasks can be assigned to either one or two agents. Assigning an additionaltask to an agent strengthens his relational contract. Therefore, broad task assignments are optimal when the performance measure strongly distorts incentives for the two-task job. This is more likely to be the case if these two tasks are substitutes.