This paper studies management when the principal has different degrees of commitment power. In a model in which both the principal and agents are symmetrically uncertain about the agents' innate abilities, implicit incentives arise when the principal is not able to commit herself to long-term contracts. The presence of implicit incentives makes the agents more reluctant to behave cooperatively (they actually have incentives to 'sabotage' their colleagues). This forces the principal to offer more 'collectively oriented' incentive schemes than in the presence of commitment, in order to induce the desired level of cooperation. Moreover, teamwork exposes agents to higher risks than the ones they are exposed to in a Taylorist workplace. We find that the optimal team size is constrained by risk considerations, and is decreasing in the uncertainty of the production technology and in the time horizon of the team.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
2281.
Find related papers by JEL classification: D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation
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