Team production benefits from a permanent fear of exclusion

One acclaimed role of managers is to monitor workers in team production processes and discipline them through the threat of terminating them from the team. We extend a standard weakest link experiment with a manager who can decide to replace some workers at a cost. We address two main questions: (i) Does the fear of exclusion need to be a permanent element of contractual agreements? (ii) Are the results robust to the introduction of noise in workers’ productivity? We find that the fear of exclusion strongly encourages cooperation among workers, but it does not generate the trust needed for cooperation once the fear of exclusion is lifted. That is, once some workers receive a permanent contract, effort levels steadily decrease. The results are robust to the introduction of noise in the link between effort and productivity.