Team-Based Incentives in Problem-Solving Organizations

Jin-Hyuk Kim () and Nick Vikander

The Journal of Law, Economics, and Organization, 2015, vol. 31, issue 2, 262-286

Abstract: This article investigates a repeated employment relationship between a principal and a team of agents hired to solve a series of problems. With non-verifiable output, rewarding agents based on team performance can relax the principal’s credibility constraint by smoothing bonus payments over time. Team incentives also induce free-riding, but the principal prefers them to individual incentives if effort costs are relatively high and problems difficult to solve. We show that a simple mixture of an individual and team bonus constitutes the optimal relational contract under joint performance evaluation. The optimal contract may be inefficient when team size is endogenous, as rewarding team performance forces the principal to share surplus with agents, but may allow him to motivate a larger group. (JEL L14, M52).

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://hdl.handle.net/10.1093/jleo/ewt017 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:31:y:2015:i:2:p:262-286.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Journal of Law, Economics, and Organization is currently edited by Andrea Prat

More articles in The Journal of Law, Economics, and Organization from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().