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Ability Dispersion and Team Performance: A Field Experiment

  • Hoogendoorn, Sander M.

    ()

    (University of Amsterdam)

  • Parker, Simon C.

    ()

    (Western University, Canada)

  • van Praag, Mirjam C.

    ()

    (Copenhagen Business School)

This paper studies the impact of diversity in cognitive ability among members of a team on their performance. We conduct a large field experiment in which teams start up and manage real companies under identical circumstances. Exogenous variation in – otherwise random – team composition is imposed by assigning individuals to teams based on their measured cognitive abilities. The setting is one of business management practices in the longer run where tasks are diverse and involve complex decision-making. We propose a model in which greater ability dispersion generates greater knowledge for a team, but also increases the costs of monitoring necessitated by moral hazard. Consistent with the predictions of our model, we find that team performance as measured in terms of sales, profits and profits per share first increases, and then decreases, with ability dispersion. Teams with a moderate degree of ability dispersion also experience fewer dismissals due to fewer shirking members in those teams.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7044.

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Length: 34 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:iza:izadps:dp7044
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  1. Dohmen, Thomas & Falk, Armin & Huffman, David B. & Sunde, Uwe, 2007. "Are Risk Aversion and Impatience Related to Cognitive Ability?," IZA Discussion Papers 2735, Institute for the Study of Labor (IZA).
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  17. Hoogendoorn, Sander M. & van Praag, Mirjam C., 2012. "Ethnic Diversity and Team Performance: A Field Experiment," IZA Discussion Papers 6731, Institute for the Study of Labor (IZA).
  18. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-58, December.
  19. Cutler, David M. & Lleras-Muney, Adriana, 2010. "Understanding differences in health behaviors by education," Journal of Health Economics, Elsevier, vol. 29(1), pages 1-28, January.
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  21. Sander Hoogendoorn & Hessel Oosterbeek & Mirjam van Praag, 2011. "The Impact of Gender Diversity on the Performance of Business Teams: Evidence from a Field Experiment," Tinbergen Institute Discussion Papers 11-074/3, Tinbergen Institute, revised 01 May 2014.
  22. Oosterbeek, Hessel & van Praag, Mirjam & Ijsselstein, Auke, 2010. "The impact of entrepreneurship education on entrepreneurship skills and motivation," European Economic Review, Elsevier, vol. 54(3), pages 442-454, April.
  23. repec:dgr:uvatin:2012068 is not listed on IDEAS
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