《Casas-Arce_Hejeebu_job_design_and_the_English_East_India_Company》.pdf

Job Design and the English East India Company Pablo Casas-Arce∗ Santhi Hejeebu†‡ Harvard University University of Iowa September 26, 2002 Abstract A forerunner of the modern corporation, the English East India Company provides a counterex- ample to the job design theory of Holmstrom and Milgrom (1991). Holmstrom and Milgrom (1991) argue that when an agent is not financially responsible for the principal’s output, he should be not be allowed to pursue outside activities during company time. In the East India Company and other employment settings, though, those activities are allowed despite poor monitoring technologies, and weak incentives. We offer a model of the job design problem in which the reward from outside activities is affected by the performance on the inside activity. In this case, the two activities can become strategic complements and increase overall incentives. As such, the model provides a rational for the existance of synergies between different activities. ∗Economics Department, Littauer Center, Harvard University, Cambridge, MA 02138 (e-mail: pcasas@fas.harvard.edu). †Economics Department, Tippie College of Business, University of Iowa, Iowa City, IA 52242 (e-mail: santhi- hejeebu@uiowa.edu). ‡We owe special thanks to Gary Fethke and Oliver Hart for making our long distance trade possible. We are also greatful to Philippe Aghion, Oliver Hart and Andrei Schleifer for their invaluable guidance. We benefited from very helpful discussions with Nittai Bergman, Drew Fudenberg, David Laibson, Ulrike Malmendier, B. Ravikumar, and Adam