Vertically Splitting a Firm: Promotion and Demotion in a Team Production Experiment

Tibor Neugebauer, Susana Cabrera, Enrique Fatas () and Juan A. Lacomba
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Juan A. Lacomba: LSF

LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg

Abstract: The paper reports an experimental study on a promotion-demotion mechanism to mitigate the free-rider problem in team production. The "mechanism hierarchically splits a group in two; we refer to one subgroup as" the major league and to the other as the minor league. The most cooperative subject of the minor league is switched with the least cooperative subject in the major league. The results reveal a significant increase of cooperation levels relative to the standard voluntary contribution mechanism. We argue that competition arises and contributions increase because some subjects believe in a larger short-term continuation payoff from the major league than from the minor league. The data suggest that the promotion-demotion mechanism leads to a self-sorting of subjects according to their cooperativeness.

Keywords: experiment; group incentives; organization design (search for similar items in EconPapers)
JEL-codes: C92 H41 J33 J4 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-hrm
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:crf:wpaper:12-3

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