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Technology, team production and incentives

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  • Smirnov, Vladimir
  • Wait, Andrew

Abstract

Incentive reversal (IR) is when higher rewards induce some agents to reduce their effort (Winter, 2009). We show that IR can hold for all agents when: there is an improvement in production technology; and rewards are based on team output. Whilst IR requires at least one worker's marginal return to be decreasing in team productivity when agents invest simultaneously, this is not necessary with sequential investments. Rather, IR can occur with sequential investment when the marginal return of effort for all agents is increasing with improvements in technology.

Suggested Citation

  • Smirnov, Vladimir & Wait, Andrew, 2015. "Technology, team production and incentives," Working Papers 2015-21, University of Sydney, School of Economics.
  • Handle: RePEc:syd:wpaper:2015-21
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    References listed on IDEAS

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    1. Eyal Winter, 2004. "Incentives and Discrimination," American Economic Review, American Economic Association, vol. 94(3), pages 764-773, June.
    2. Gal-Or, Esther, 1985. "First Mover and Second Mover Advantages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 649-653, October.
    3. Eyal Winter, 2009. "Incentive Reversal," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 133-147, August.
    4. Roland Bel, 2013. "Access, Veto, and Ownership in the Theory of the Firm," Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(4), pages 871-897, August.
    5. Ilya Segal, 2003. "Collusion, Exclusion, and Inclusion in Random-Order Bargaining," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 439-460.
    6. Eyal Winter, 2006. "Optimal incentives for sequential production processes," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 376-390, June.
    7. Klor, Esteban F. & Kube, Sebastian & Winter, Eyal & Zultan, Ro’i, 2014. "Can higher rewards lead to less effort? Incentive reversal in teams," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 72-83.
    8. Bel, Roland & Smirnov, Vladimir & Wait, Andrew, 2015. "Team composition, worker effort and welfare," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 1-8.
    9. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    10. Shai Bernstein & Eyal Winter, 2012. "Contracting with Heterogeneous Externalities," American Economic Journal: Microeconomics, American Economic Association, vol. 4(2), pages 50-76, May.
    11. Maxim Mai & Vladimir Smirnov & Andrew Wait, 2014. "Ownership, Access, and Sequential Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 47(1), pages 203-231, February.
    12. Ilya Segal, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 57-82.
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    More about this item

    Keywords

    Moral hazard in teams; Technology; Productivity; Incentive reversal;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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