Dynamic Production Teams with Strategic Behavior

We analyze the extent to which intergenerational teams provide information on workers' productivity in the long run. We use a dynamic stochastic framework where wages are reputation-based and consider three possible work arrangements. When agents can only work by themselves we show that some uncertainty persists on their productivity at the steady state. Next, our results indicate that when the same technological shocks affect all teammates, then forcing workers to work together reveals their productivity in the steady state. However, some uncertainty on agents' productivities persist in the long run when technological shocks differ across teammates. We also allow workers to choose between working on their own or in a team. In this case the problem falls in the class of dynamic games. We compute the Nash-equilibrium work strategies, the direction of inter-workers transfers and the steady-state distribution of wages and utility. Elective teams are preferred by high-productivity young workers when technological shocks are specific to each teammate, and maximize the expected utility of a young worker when shocks are perfectly correlated