Optimal Hybrid Work Design: A Principal-Agent Model with Endogenous Monitoring and Heterogeneous Productivity

This study examines the determinants of hybrid work arrangements through a principal–agent framework, focusing on how moral hazard and endogenous monitoring interact with heterogeneous productivity across remote and on-site settings. The model characterizes the conditions under which firms adopt, maintain, or abandon hybrid work policies, explaining why both employees and employers may prefer on-site arrangements even when tasks are technically feasible to perform remotely. By integrating empirical evidence on post-pandemic work patterns with agency theory, the analysis highlights how differences in observability, productivity, and preferences shape the viability of hybrid work and helps explain the partial return to office environments.