Focusing Attention in Multiple Tasks

Abstract

With increasingly complex workplaces agents face a multitude of different tasks. Standard contract theory predicts similar complex contracts, however, actual contracts are simpler. In order to explain this puzzle I propose a model in which agents' limited attention leads to an instinctive focus on tasks with high outcome variation. This focus of attention leads to a countervailing effect, where despite optimal incentives for a rational agent, the focusing agent chooses the wrong allocation of effort. This provides a mechanism of findings in field studies. In order to prevent the agent from focusing too much on some tasks over others, the principal needs to assimilate the incentives. Thus even if all outcomes can be measured, the principal will not condition the optimal contract on all available information.