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Does Team-Based Compensation Give Rise to Problems when Agents Vary in their Ability ?

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Author Info

  • Claude Meidinger

    (TEAM - Théories et Applications en Microéconomie et Macroéconomie - CNRS : UMR8059 - Université Paris I - Panthéon-Sorbonne)

  • Jean-Louis Rullière

    () (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

  • Marie-Claire Villeval

    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

Abstract

This paper reports the results of an experiment on how team composition influences both the contract offer of employers and employee performance when a revenue-sharing scheme is introduced. Experimental evidence shows that the principal ceases trying to monitor her team through a contract offer when agents vary in their ability. In this case, agents focus more heavily on their teammate's behaviour than on the principal's offer and therefore, regardless of the level of team-based compensation, a large amount of free-riding occurs within the team. In contrast, when the team is homogeneous, agents are better able to use the contract offer as a coordination device among themselves and therefore achieve higher efficiency.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00179979.

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Date of creation: 2001
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Handle: RePEc:hal:cesptp:halshs-00179979

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00179979
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Web page: http://hal.archives-ouvertes.fr/

Related research

Keywords: compensation; experimental economics; free-riding; peer pressure; teamwork;

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References

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  1. Jacob K. Goeree & Charles A. Holt, 2001. "Ten Little Treasures of Game Theory and Ten Intuitive Contradictions," American Economic Review, American Economic Association, vol. 91(5), pages 1402-1422, December.
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  12. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
  13. Leibowitz, Arleen & Tollison, Robert, 1980. "Free Riding, Shirking, and Team Production in Legal Partnerships," Economic Inquiry, Western Economic Association International, vol. 18(3), pages 380-94, July.
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  16. Booth, Alison L & Frank, Jeff, 1999. "Earnings, Productivity, and Performance-Related Pay," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 447-63, July.
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  18. Nalbantian, Haig R & Schotter, Andrew, 1997. "Productivity under Group Incentives: An Experimental Study," American Economic Review, American Economic Association, vol. 87(3), pages 314-41, June.
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Citations

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Cited by:
  1. Königstein, Manfred & Ruchala, Gabriele K., 2007. "Performance Pay, Group Selection and Group Performance," IZA Discussion Papers 2697, Institute for the Study of Labor (IZA).
  2. Montmarquette, Claude & Rullière, Jean-Louis & Villeval, Marie Claire & Zeiliger, Romain, 2004. "Redesigning Teams and Incentives in a Merger: An Experiment with Managers and Students," IZA Discussion Papers 1057, Institute for the Study of Labor (IZA).
  3. Englmaier, Florian & Gebhardt, Georg, 2010. "Free Riding in the Lab and in the Field," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 344, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Sandra Maximiano & Randolph Sloof & Joep Sonnemans, 2007. "Gift Exchange in a Multi-Worker Firm," Economic Journal, Royal Economic Society, vol. 117(522), pages 1025-1050, 07.
  5. Marilyne Antonetti & Alexandra Rufini, 2008. "Social norms, coordination and collaboration in heterogeneous teams," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(7), pages 547-554.

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