Alex Frug (Universitat Pompeu Fabra)

A theory of front-line management

Abstract. Mid- and low-level managers play a significant role within the organizational hierarchy, far beyond monitoring. It is often their responsibility to respond to opportunities and threats within their units by adjusting their subordinates’  assignments. Most such managers, however, lack the authority to adapt their subordinates’ wages. Instead, they rely on other, more restrictive incentive schemes. We study the interaction between a front-line manager and worker, and characterize the “managerial style” as a function of the players’ relative patience and information. Our analysis also offers insights into broader organizational design problems such as selecting the managers’ discretion level, promotion policies, etc.