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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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File URL: http://www.sciencedirect.com/science/article/pii/S0022053111000901
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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Legros, Patrick & Newman, Andrew F, 2002. "Monotone Matching in Perfect and Imperfect Worlds," Review of Economic Studies, Wiley Blackwell, vol. 69(4), pages 925-42, October.
  2. 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..
  3. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
  4. Patrick Legros & Andrew F. Newman, 2002. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-149, Boston University - Department of Economics, revised Nov 2004.
  5. Andrew F. Newman, 2007. "Risk-Bearing and Entrepreneurship," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-162, Boston University - Department of Economics.
  6. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
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