Economic Theory and Experiments Seminar - Luis Pontes de Vasconcelos (University of Technology Sydney)

Title: Real and Revealed Loyalties in Organizations

Abstract: A key role of middle managers is to collate and convey decision-relevant information to the headquarters and to ensure junior workers have adequate incentives to carry out the instructions from the top. We analyze how the characteristics of the middle manager in terms of his "loyalty" to the top and his "skill" in evaluating projects affect his ability to perform these two tasks. We show that for any given skill level, there is a range of loyalty for which the middle manager remains effective. Too little or too much loyalty makes the manager either "non-credible" to the top or ineffective in incentivizing the bottom ranks of the organization. Moreover, the range of "feasible" loyalty increases in skill level. We also analyze how, in a repeated setting, the characteristics of the middle manager affect the communication and project implementation protocols and which relationships within the organization need to be leveraged to keep junior workers motivated.