Misaligning incentives in teams

Cusumano, Carlo M., Gan, Tan ORCID: 0000-0002-9483-7869 and Pieroth, Ferdinand (2024) Misaligning incentives in teams. . Social Science Research Network (SSRN).

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Abstract

In a multi-agent setting, we study the optimal design of monitoring and compensation to uniquely implement work under contracting frictions. The principal monitors workers flexibly but is constrained in the number of messages she can contract on. Our main result shows that misaligning workers’ incentives is optimal as it decreases the positive externalities they have on each other’s remuneration. This allows the principal to extract the full surplus from a team whose size grows exponentially with the number of messages. With the strongest contracting frictions, i.e., two available messages, the optimal contract features two sub-teams competing for a bonus.

Item Type:	Monograph (Working Paper)
Divisions:	Management
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor
JEL classification:	D - Microeconomics > D6 - Welfare Economics > D62 - Externalities D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory
Date Deposited:	19 Sep 2024 11:36
Last Modified:	02 Oct 2024 23:18
URI:	http://eprints.lse.ac.uk/id/eprint/125465

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