Teams, Repeated Tasks, and Implicit Incentives

Anil Arya, John Fellingham and Jonathan Glover.

Corporate Finance & Organizations from Ohio State University

Abstract: This paper provides an explanation for why incentive contracts that are muted (compared to incentive contracts derived from standard agency models) may be effective in motivating team members. By having the team repeat a task in a second period, the explicit incentives that need to be provided to the team members can be partially substituted by implicit incentives that the team members provide to each other. The optimal two-period contract provides the managers with incentives to monitor each other and a means of punishing free riders.

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