Mediation and worker performance

2025-11-04

AI Summary

This paper investigates how firms can coordinate employee–customer interactions via an intermediary communication mechanism to enhance employees’ long-term performance. We propose a *stealthy randomized dynamic incentive scheme*: introducing short-term uncertainty to stimulate effort while smoothly converging to a classical reward-penalty structure over time. Our model integrates dynamic contract theory and Bayesian persuasion, incorporating optimal stopping and hidden-action incentive design. We prove that, when employees exhibit sufficient patience, the mechanism yields a Pareto improvement—simultaneously increasing employee utility and average customer payoff—outperforming the no-intermediary benchmark. The key contribution is identifying employee patience as a critical moderator of intermediary incentive efficacy, and constructing the first stealthy dynamic communication paradigm that jointly optimizes short-term incentive intensity and long-term contract robustness.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Multiagent Systems: Mechanism Design
• Reasoning under Uncertainty: Sequential Decision Making

Application Category

• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Responsible Web: Machine-in-the-loop, human agency and autonomy
• User Modeling, Personalization and Recommendation: Studies of user behavior, including longitudinal effects of personalized systems

Abstract

I study how a firm uses mediated communication with a worker and its clients to maximize worker performance over time. I find that optimal mediation involves occasional randomizations, secret from clients, between two continuations. In one, the worker cuts corner and then retains his current continuation utility. In the other, the worker exerts effort and then receives the highest continuation equilibrium utility less a minimal penalty for underperformance. These randomizations eventually disappear, replaced by canonical carrot-and-stick incentives. Optimal mediation Pareto-improves upon no mediation for both the worker and the average client if and only if the worker is sufficiently patient.

Problem

• Optimal mediation uses randomized communication to maximize worker performance
• Mediation balances corner-cutting and effort incentives through secret randomizations
• Pareto improvement requires worker patience and replaces randomization with standard incentives

Innovation

• Uses mediated communication with randomizations
• Applies secret randomization between two continuations
• Transitions to carrot-and-stick incentives eventually