The Optimal Assortativity of Teams Inside the Firm
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Banco Central de Costa Rica
Abstract
How does a profit-maximizing manager form teams and compensate workers in the presence
of both adverse selection and moral hazard? Under complete information, it is well
known that any complementarity in characteristics implies that positive assortative matching
is productively efficient. But, under asymmetric information, we uncover the problem of
disassortative incentives: incentive costs may increase in assortativity. Profit maximization
thus prescribes either random or negative assortative matching, both productively inefficient,
when complementarities are weak and effort costs are high enough. When this is the
case, the manager may instead prefer to delegate matching, allowing workers to sort themselves
into teams. Our results shed light on recent empirical work documenting patterns of
non-assortative matching inside of firms.
Descripción
How does a profit-maximizing manager form teams and compensate workers in the presence
of both adverse selection and moral hazard? Under complete information, it is well
known that any complementarity in characteristics implies that positive assortative matching
is productively efficient. But, under asymmetric information, we uncover the problem of
disassortative incentives: incentive costs may increase in assortativity. Profit maximization
thus prescribes either random or negative assortative matching, both productively inefficient,
when complementarities are weak and effort costs are high enough. When this is the
case, the manager may instead prefer to delegate matching, allowing workers to sort themselves
into teams. Our results shed light on recent empirical work documenting patterns of
non-assortative matching inside of firms.