Employment Contracts, Influence Activities, and Efficient Organizational Design

Efficient employment contracts usually fail to compensate workers for the effects of post-hiring events and decisions when changing jobs is costly. Then, when there are executives and managers with authority to make discretionary decisions, affected employees will be led to waste valuable time trying to influence their decisions. Efficient organization design counters this tendency by limiting the discretion of decision makers, especially for those decisions that have large distributional consequences but that are otherwise of little consequence to the organization.