Research Seminar Archive
Dr Nicholas Vikander Team-Based Incentives in Problem-Solving Organizations
This paper investigates a repeated employment relationship between a principal and agents hired to solve a series of problems. We show that under relational contracts, the principal prefers team to individual incentives whenever problems are difficult to solve and the cost of effort is moderate.
Team incentives lead to free-riding but can also increase the principal's credibility by smoothing bonus payments over time. If team size is endogenous, team incentives can increase efficiency by allowing the principal to motivate more agents. Yet the principal may still prefer inefficient individual incentives because they allow him to capture all surplus.
An Economics and Finance research seminar.