Introducing managerial attention allocation in incentive contracts

This paper introduces and studies the role of managerial attention allocation constraints in incentive contracts. We extend the traditional moral-hazard benchmark model with multi-tasking and linear incentive contracts by letting the principal choose the amount of monitoring allocated across tasks. In our model, more attention allocated to a task improves the task contractibility and consequently increases the effort provided by the agent. Our findings show that, even under symmetry, in the presence of increasing returns to scale in either production or monitoring the principal may optimally offer an unbalanced incentive contract while allocating different amounts of attention across tasks. Finally, we comment on the empirical content of our model.