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Team production in competitive labor markets with adverse selection

Ferdinand von Siemens and Michael Kosfeld ()

European Economic Review, 2014, vol. 68, issue C, 181-198

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: Team production; Competition; Adverse selection; Externality (search for similar items in EconPapers)
JEL-codes: D82 D24 J30 L22 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:68:y:2014:i:c:p:181-198

DOI: 10.1016/j.euroecorev.2014.03.003

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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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