The Optimal Assortativity of Teams Inside the Firm

Loading...
Thumbnail Image

Date

relationships.contributorAdvisor

Journal Title

Journal ISSN

Volume Title

Publisher

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.

Description

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.

Códigos JEL

C78 - Teoría de la negociación; Teoría de la confrontación; D86 - Economía de los contratos: teoría; L23 - Organización de la producción

JEL codes

C78 - Bargaining Theory; Matching Theory; D86 - Economics of Contract: Theory; L23 - Organization of Production

Keywords

Informacion asimetrica, Delegación, Equipos

Keywords

Asymmetric Information; Assortative Matching; Delegation; Teams

Identifiers

https://repositorioinvestigaciones.bccr.fi.cr/handle/20.500.12506/345