Information Flow, Incentives, and the Optimal Assignment of Responsibilities
Posted: 20 Nov 1997
In this paper, I study how to best assign responsibilities and design reward structures to take advantage of available information for a two-stage production process. Two alternative assignments compete. One resembles the American style push assignment where the responsibility for initiating production rests with initial stage agent, while the other assignment is similar to the Japanese style pull where initiating production is the responsibility of the final stage agent. I show that the key distinguishing feature between these assignments is the output under the pull allows for inference about quality enhancing activities where output under the push assignment does not. The ability to take advantage of such information to provide incentives for quality enhancement in turn dictates the choice between these two assignments. Based on this, I provide insights into the choice of an optimal assignment and the implications of the choice for product quality, productivity, and process improvement.
JEL Classification: M40, M46, L23
Suggested Citation: Suggested Citation