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Team Production in Competitive Labor Markets with Adverse Selection

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  • Ferdinand von Siemens
  • Michael Kosfeld

Abstract

Team production is a frequent feature of modern organizations. Combined with team incentives, team production can create externalities among workers, since their utility upon accepting a contract depends on their team’s performance and therefore on their colleagues’ productivity. We study the effects of such externalities in a competitive labor market if workers have private information on their productivity. We find that in any competitive equilibrium there must be Pareto-efficient separation of workers according to their productivity. We further find that externalities facilitate equilibrium existence, where under a particular condition on workers’ indifference curves even arbitrarily small externalities guarantee equilibrium existence.

Suggested Citation

  • Ferdinand von Siemens & Michael Kosfeld, 2014. "Team Production in Competitive Labor Markets with Adverse Selection," CESifo Working Paper Series 4638, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_4638
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    References listed on IDEAS

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    Cited by:

    1. Guido Friebel & Matthias Heinz & Miriam Krueger & Nikolay Zubanov, 2017. "Team Incentives and Performance: Evidence from a Retail Chain," American Economic Review, American Economic Association, pages 2168-2203.
    2. Wanda Mimra & Achim Wambach, 2014. "New Developments in the Theory of Adverse Selection in Competitive Insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 39(2), pages 136-152, September.

    More about this item

    Keywords

    team production; competition; adverse selection; externality;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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