Working Paper: CEPR ID: DP9833
Authors: Michael Kosfeld; Ferdinand von Siemens
Abstract: Team production is a frequent feature of modern organizations. Combined with team incentives, team production can create externalities among workers, since their utility upon accepting a contract depends on their team?s performance and therefore on their colleagues? productivity. We study the effects of such externalities in a competitive labor market if workers have private information on their productivity. We find that in any competitive equilibrium there must be Pareto-efficient separation of workers according to their productivity. We further find that externalities facilitate equilibrium existence, where under a particular condition on workers? indifference curves even arbitrarily small externalities guarantee equilibrium existence.
Keywords: Adverse Selection; Competition; Externality; Team Production
JEL Codes: D24; D82; J30; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| team production (L23) | worker utility (J29) |
| externalities (D62) | worker productivity (J29) |
| externalities (D62) | equilibrium existence (C62) |
| latent contracts (D86) | market entry by new firms (M13) |
| equilibrium existence (C62) | Pareto-efficient separation of workers (J79) |