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Limiting the Leader: Fairness Concerns in Team Production with Leader-Determined Monitoring

Luke Boosey, R. Mark Isaac and Abhijit Ramalingam

No 21-11, Working Papers from Department of Economics, Appalachian State University

Abstract: We use a laboratory experiment to investigate the extent to which leaders—faced with opportunistic incentives—employ monitoring to improve team production. Participants are assigned to teams, with one person appointed as the leader. The leader has the power to commit to a monitoring option, which replaces the default equal sharing rule with one that distributes team revenue in proportion to individual investments. Additionally, the leader can announce a claim to a portion of the team revenue, which is paid before shares are distributed. Theoretically, there are multiple equilibria involving monitoring and full investment, characterized by the largest claim the non-leaders are willing to cede to the leader. We appeal to fairness concerns and repeated interaction in order to provide sharper predictions that pivot around a ‘fair claim’. In the experiments, leaders are mostly unsuccessful at increasing team production as they claim too much or forgo the monitoring option too often, especially when it is costly to monitor. When there is no cost, nearly half of the leaders successfully increase team production towards full investment, by relying on constant monitoring and resisting the temptation to issue unfair claims. These results highlight the potential for opportunistic incentives to undermine efficiency-enhancing leadership, even when the leader can commit to her decisions. Key Words: leader, monitoring, team production, fairness, free-riding, experiment

JEL-codes: C72 C92 D20 D70 H41 M5 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cdm, nep-exp and nep-hrm
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