ON THE INTERRELATION BETWEEN PRODUCTION TECHNOLOGY, JOB DESIGN, AND INCENTIVES

For a two-stage production process, two assignments of tasks among two agents are studied: an 'assembly line', where each agent is responsible for one stage, vs. a 'team', where agents are jointly responsible for all tasks. When attention paid to quality at the initial stage affects the final-stage task, the team approach is optimal for unsophisticated production technology. As technology improves, the assembly line becomes dominating while continued improvements eventually makes it optimal to abandon the assembly line again in favor of the team approach. When such switches in job design occur, the optimal investment in technology exhibits positive jumps.