Delegation and Team Selection

We model a managerial decision environment in which a manager both determines the skill heterogeneity of her workers and determines whether to retain or delegate the ability to allocate tasks. The manager prefers delegating when uncertainty is sufficiently high relative to the incentive conflict with her workers, which is endogenously determined by her chosen team composition. Experimental data supports the direction of the main predictions, though it shows how and why participants deviate from expected behavior. In particular, it shows that managers selecting a team composition closer to the optimal predictions delegate better and have higher payoffs. Deviations from the optimal team composition are consistent with loss aver- sion and heuristic learning rules. Generally, the results highlight the difficulties in navigating complex managerial environments and illustrate potentially costly ways in which managers seek to simplify their decisions.