Incomplete information, task assignment, and managerial control systems

Sri S. Sridhar*, Bala V. Balachandran

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

22 Scopus citations

Abstract

A firm typically assigns multiple tasks it must perform to either internal employees or outside vendors. This paper demonstrates the need to integrate a task assignment decision with the design of a managerial control system as each affects the other. An internal employee is distinguished from an outside supplier on four different informational dimensions: (i) at the time of contracting, the outside supplier has less information about the task environment more often than the internal employee; (ii) the principal observes the employee's information set more frequently than that of the supplier; (iii) the principal can exercise a greater control over information flow to the internal employee than to the outside supplier; and (iv) the principal may share the details of the outside supplier's contract with the internal employee but not vice versa. Under each of these four distinguishing dimensions, the principal is shown to outsource the upstream task and assign the downstream task to the internal employee more often than vice versa. Further, under the last two dimensions of the firm's boundary, the principal can eliminate inefficiencies arising from the agents' contracting with incomplete information by assigning the downstream task to the employee and not providing predecision information to him while assigning the upstream task to the supplier.

Original languageEnglish (US)
Pages (from-to)764-778
Number of pages15
JournalManagement Science
Volume43
Issue number6
DOIs
StatePublished - Jun 1997

Keywords

  • Assignment of Tasks
  • Boundaries of Firm
  • Control System
  • Incomplete Information
  • Internal Employee Versus Outside Supplier
  • Outsourcing

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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