The Optimal Assortativity of Teams Inside the Firm

Carlos Segura-Rodriguez () and Ashwin Kambhampati ()
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Carlos Segura-Rodriguez: Department of Economic Research, Central Bank of Costa Rica
Ashwin Kambhampati: Deparment of Economics, University of Pennsylvania

No 2103, Documentos de Trabajo from Banco Central de Costa Rica

Abstract: How does a profit-maximizing manager form teams and compensate workers in the presence of both adverse selection and moral hazard? Under complete information, it is well known that any complementarity in characteristics implies that positive assortative matching is productively efficient. But, under asymmetric information, we uncover the problem of disassortative incentives: incentive costs may increase in assortativity. Profit maximization thus prescribes either random or negative assortative matching, both productively inefficient, when complementarities are weak and effort costs are high enough. When this is the case, the manager may instead prefer to delegate matching, allowing workers to sort themselves into teams. Our results shed light on recent empirical work documenting patterns of non-assortative matching inside of firms.

Keywords: Asymmetric Information; Assortative Matching; Delegation; Teams, Informacion asimetrica, Delegación, Equipos (search for similar items in EconPapers)
JEL-codes: C78 D86 L23 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2021-02
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Persistent link: https://EconPapers.repec.org/RePEc:apk:doctra:2103

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