I-deal or No I-deal? Lessons for Managers from Economic Theory

I-deal or No I-deal? Lessons for Managers from Economic Theory

• Associate Professor of Management Smriti Anand
• Associate Professor of Economics Priyanka Sharma
• Professor of Economics Liad Wagman
• Pouya Haddadian Nekah, Stuart Management Science Ph.D. student

Abstract:

We explore the interface of idiosyncratic work arrangements (i-deals) and economic theory on private information. To that end, we model i-deals as informal supervisor-employee agreements, and use the principal-agent framework from economics to form linkages between the two literatures. We first highlight that supervisor-employee interactions tend to be rife with information asymmetries, where one party may possess some information that the other party does not. Next, we link the economic concepts of adverse selection and moral hazard to i-deals, pointing out the potential negative effects of information asymmetries on supervisor-employee interactions. Lastly, we introduce two market mechanisms from economics, namely signaling and screening, that can be useful in overcoming the issues surrounding information asymmetries, and emphasize their applicability to i-deals. The discussion illustrates informational reasons that may drive managers to reject i-deal arrangements, as well as potential solutions.

All Illinois Tech faculty, students, and staff are invited to attend.

The Friday Research Presentations series showcases ongoing academic research projects conducted by Stuart School of Business faculty and students, as well as guest presentations by Illinois Tech colleagues, business professionals, and faculty from other leading business schools.