Working Paper: CEPR ID: DP2281
Authors: Emmanuelle Auriol; Lambros Pechlivanos; Guido Friebel
Abstract: This paper studies management when the principal has different degrees of commitment power. In a model in which both the principal and agents are symmetrically uncertain about the agents' innate abilities, implicit incentives arise when the principal is not able to commit herself to long-term contracts. The presence of implicit incentives makes the agents more reluctant to behave cooperatively (they actually have incentives to 'sabotage' their colleagues). This forces the principal to offer more 'collectively oriented' incentive schemes than in the presence of commitment, in order to induce the desired level of cooperation. Moreover, teamwork exposes agents to higher risks than the ones they are exposed to in a Taylorist workplace. We find that the optimal team size is constrained by risk considerations, and is decreasing in the uncertainty of the production technology and in the time horizon of the team.
Keywords: teamwork; commitment; team size; collective orientation of incentive schemes; career concerns; sabotage
JEL Codes: D23; J33; M12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Diminishing managerial commitment (M54) | Implicit incentives that discourage cooperation among agents (C72) |
| Implicit incentives that discourage cooperation among agents (C72) | Agents sabotaging their colleagues to appear more productive (D73) |
| Diminishing managerial commitment (M54) | Teamwork dynamics (M54) |
| Team size constrained by risk considerations (L25) | Optimal team size decreases with uncertainty in production technology and time horizon (D29) |