Abstract In this paper, we consider the role of production externalities in the task assignment problem. Milgrom and Roberts (1992) suggest that complementarities available when agents are assigned to diverse tasks are necessary to overcome distortions in effort allocations caused by an inability to fine‐tune incentives when agents' compensation is based on aggregate imperfect signals. Our analysis formalizes this intuition in a setting that encompasses externalities under both diverse and similar task assignments.