On the Role of Incentives in Evolutionary Approaches to Organizational Design

TL;DR

This paper models organizational decision-making with different incentive schemes, showing altruistic incentives improve performance and that short-sighted decisions can be beneficial in the long run under altruistic incentives.

Contribution

It introduces a stylized organizational model analyzing the impact of various incentive schemes on decision-making and performance, highlighting the advantages of altruistic incentives.

Findings

Altruistic incentives outperform individualistic ones in organizational performance.

Short-sighted decisions can lead to higher long-term performance under altruistic incentives.

Altruistic schemes promote better task interdependency management.

Abstract

This paper introduces a model of a stylized organization that is comprised of several departments that autonomously allocate tasks. To do so, the departments either take short-sighted decisions that immediately maximize their utility or take long-sighted decisions that aim at minimizing the interdependencies between tasks. The organization guides the departments' behavior by either an individualistic, a balanced, or an altruistic linear incentive scheme. Even if tasks are perfectly decomposable, altruistic incentive schemes are preferred over individualistic incentive schemes since they substantially increase the organization's performance. Interestingly, if altruistic incentive schemes are effective, short-sighted decisions appear favorable since they do not only increase performance in the short run but also result in significantly higher performances in the long run.