Team Diversity and Incentives

Lorens A. Imhof () and Matthias Kräkel
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Lorens A. Imhof: Department of Economics, University of Bonn, D-53113 Bonn, Germany

Management Science, 2023, vol. 69, issue 4, 2497-2516

Abstract: This paper analyzes how the degree of task-related team diversity influences the team outcome. The focus is on a novel benefit of team diversity that does not depend on complementary skills or mutual learning. We consider a multiagent setting where the employer makes use of career competition to motivate the team. Our analysis reveals incentive effects that do not exist in the well-studied case of teams of size 2. In teams with more than two members, diversity may have a positive effect on the efforts of some members although diversity leads to unbalanced career competition. As a consequence, expected profits are higher under a moderate degree of diversity compared with a situation with completely homogeneous agents. This result shows that the employer prefers a positive degree of diversity for pure incentive reasons.

Keywords: asymmetric tournaments; career competition; heterogeneous agents; moral hazard; principal-agent model (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:4:p:2497-2516

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