Individual, Collective, and Systems Rationality in Work Groups: Dilemmas and Solutions
In formal organizations and particularly in work teams within organizations, the following two situations often arise. In the first, one can observe or measure only the output of the work group, not the contributions of each member. In the second, the output of each member depends not only on her own effort but also on the efforts of other workers. The problem that arises in both situations is how to construct reward or incentive schemes. In the first case, one cannot tie individual rewards to individual outputs. In the second, one can do so, but the connection between individual effort and output is blurred by the interdepen- dencies between the workers. Group piece-rate schemes are suggested remedies in both situations. However, it is wellknown that group piece-rate schemes are susceptible to free-rider problems. The classic solution to the free-rider prob-lem and to the problem of team interdependencies in general is to substitute a market-type relationship, such as a group piece-rate scheme, with an authority relationship, in which a supervisor keeps free riders in line. In this paper, I discuss an alternative solution to the free-rider problem, a solution that retains the market-type character of the piece-rate scheme but in which the relationship between output and reward is highly nonlinear. I show that a so-called target-rate scheme, either individual or group based, in which pay is high if a production target is reached and low otherwise, can solve the free-rider problem. I use evidence from establishment-level data on several thousand production workers in two U.S. industries to support this claim.
|Date of creation:||01 Jan 1994|
|Contact details of provider:|| Postal: 2521 Channing Way # 5555, Berkeley, CA 94720-5555|
Web page: http://www.escholarship.org/repec/iir_iirwps/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Etzioni, Amitai, 1986. "The Case for a Multiple-Utility Conception," Economics and Philosophy, Cambridge University Press, vol. 2(02), pages 159-184, October.
- Alchian, Armen A & Demsetz, Harold, 1972.
"Production , Information Costs, and Economic Organization,"
American Economic Review,
American Economic Association, vol. 62(5), pages 777-795, December.
- Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
- F. Biesmans, 1977. "A Survey," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 48(1), pages 5-36, 01.
- Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
- Hajime Miyazaki, 1984. "Work Norms and Involuntary Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 99(2), pages 297-311.
- Bengt Holmstrom, 1982.
"Moral Hazard in Teams,"
Bell Journal of Economics,
The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
When requesting a correction, please mention this item's handle: RePEc:cdl:indrel:qt3wx234rd. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.