Competition for talent: heterogenous abilities in team production

Using public goods games in a laboratory setting, we study team-level production, where two teams compete for the resources of a common-member who can benefit from and provide effort in both teams. Intrinsically, the common-member faces divided loyalties. We examine such competition in a setting in which the common-member has productive abilities equal to that of the other team members (dedicated-members), and in two settings where he/she has greater relative potential. When effort (contributions) by the common-member have greater productivity (coupled with higher opportunity costs to contribute) in providing the public good relative to that of dedicated-members, we find team performance is not significantly increased. On the other hand, when the common-member has a greater endowment, sufficient to match the absolute contributions of team members in both teams, there is a significant increase in team performance. The evidence suggests that a norm of reciprocity by dedicated-members based on absolute contributions of the common-member better explains behavior than a norm based on the value added of the common-member’s contributions. This behavior, along with fairness norms elicited in a survey, suggests that on average dedicated members do not sufficiently incorporate the common-members’ higher opportunity costs in the treatment where his/her productivity is increased. This setting provides an important illustration of where the behavioral response to the type of inequality matters, leading to differences in team efficiency.