This Paper develops a theory of diversity in work groups within organizations. Diversity is determined by the group members' dfferences in backgrounds. Diverse teams possess more information than homogeneous ones. If beliefs and preferences are expressed openly, diverse teams can reach better decisions. However, due to their members' heterogeneous backgrounds diverse teams are more prone to conflict. The Paper shows that the relative performance of heterogeneous and homogeneous groups depends on the leader's authority to make personnel decisions, especially whether the leader can replace team members. A number of implications follow regarding the shaping and composition of organizations.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
2673.
Find related papers by JEL classification: D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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