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When changing jobs is costly, efficient employment contracts usually fail to compensate workers for the effects of posthiring events and decisions. Then, when there are executives and managers with authority to make discretionary decisions, affected employees will be led to waste valuable time trying to influence their decisions. Efficient organization design counters this tendency by limiting the discretion of decisions makers, especially for those decisions that have large distributional consequences but that are otherwise of little consequence to the organization.

Employment Contracts, Influence Activities, and Efficient Organization Design