Coordination Failure and Multiple Equilibria in the Firm

Felix Fitzroy

CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: Two components of work activity are considered: observed effort, which can be rewarded directly, and unobserved helping or communication in a team which increases productivity. Positivite spillovers from helping can generate multiple equilibria (as in imperfectly competitive macroeconomies). Under reasonable assumptions, a group incentive or share payment can block an inferior, low-cooperation equuilibrium, and complement peer-pressure to elicit a finite increase in cooperation and productivity, even when the team is large and the share, s1/n, is small. Thus we have a solution of the 1/n problem that has puzzled observers of the association between profit-sharing and productivity gains.

Keywords: Peer-pressure; group incentive; profit-sharing; cooperation; team work (search for similar items in EconPapers)
JEL-codes: D2 L2 (search for similar items in EconPapers)
Date: 1993-10
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Persistent link: https://EconPapers.repec.org/RePEc:san:crieff:9312

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