IDEAS home Printed from
   My bibliography  Save this paper

Individual, Collective, and Systems Rationality in Work Groups: Dilemmas and Solutions


  • Petersen, Trond


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.

Suggested Citation

  • Petersen, Trond, 1994. "Individual, Collective, and Systems Rationality in Work Groups: Dilemmas and Solutions," Institute for Research on Labor and Employment, Working Paper Series qt3wx234rd, Institute of Industrial Relations, UC Berkeley.
  • Handle: RePEc:cdl:indrel:qt3wx234rd

    Download full text from publisher

    File URL:;origin=repeccitec
    Download Restriction: no

    References listed on IDEAS

    1. 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.
    2. F. Biesmans, 1977. "A Survey," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 48(1), pages 5-36, January.
    3. Etzioni, Amitai, 1986. "The Case for a Multiple-Utility Conception," Economics and Philosophy, Cambridge University Press, vol. 2(02), pages 159-184, October.
    4. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    5. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    6. Hajime Miyazaki, 1984. "Work Norms and Involuntary Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 99(2), pages 297-311.
    Full references (including those not matched with items on IDEAS)


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.