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Hierarchy and Opportunism in Teams

Author

Listed:
  • Eline van der Heijden

    (Department of Economics, Tilburg University)

  • Jan Potters

    (Department of Economics, Tilburg University)

  • Martin Sefton

    (School of Economics, University of Nottingham)

Abstract

We use an experiment to compare two institutions for allocating the proceeds of team production. Under revenue-sharing, each team member receives an equal share of team output; under leader-determined shares, a team leader has the power to implement her own allocation. Both arrangements are vulnerable to opportunistic incentives: under revenue-sharing team members have an incentive to free-ride, while under leader-determined shares leaders have an incentive to seize team output. We find that most leaders forego the temptation to appropriate team output and manage to curtail free-riding. As a result, compared to revenue-sharing, the presence of a team leader results in a significant improvement in team performance.

Suggested Citation

  • Eline van der Heijden & Jan Potters & Martin Sefton, 2006. "Hierarchy and Opportunism in Teams," Discussion Papers 2006-15, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Handle: RePEc:not:notcdx:2006-15
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    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D2 - Microeconomics - - Production and Organizations
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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