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Incentives and the structure of teams

  • Franco, April Mitchell
  • Mitchell, Matthew
  • Vereshchagina, Galina

This paper studies the relationship between moral hazard and the matching structure of teams. We show that team incentive problems may generate monotone matching predictions in the absence of complementarities in the production technology. Second, we analyze how complementarity in the underlying technology affects the matching predictions arising due to moral hazard. We find that (i) even when the production technology is strongly complementary, the incentive problem may lead to formation of negatively sorted teams; (ii) as the degree of complementarity increases, the optimal matching structure may switch from positive to negative, solely due to the need to provide incentives.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 146 (2011)
Issue (Month): 6 ()
Pages: 2307-2332

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:6:p:2307-2332
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  1. Legros, Patrick & Newman, Andrew, 2000. "Monotone Matching In Perfect And Imperfect Worlds," CEPR Discussion Papers 2396, C.E.P.R. Discussion Papers.
  2. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
  4. Newman, Andrew, 2007. "Risk-bearing and Entrepreneurship," CEPR Discussion Papers 6021, C.E.P.R. Discussion Papers.
  5. Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, vol. 75(4), pages 1073-1102, 07.
  6. Patrick Legros & Andrew Newman, 2007. "Beauty is a beast, frog is a prince: assortative matching in a nontransferable world," ULB Institutional Repository 2013/7022, ULB -- Universite Libre de Bruxelles.
  7. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 551-575.
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