Research seminar by Nick Vikander (University of Edinburgh): «TEAM-BASED INCENTIVES IN PROBLEM-SOLVING ORGANIZATIONS»

On Thursday, October 13 at 4.30 pm International College of Economics and Finance held Research seminar.
Venue: Pokrovski Bulvar, 11, Room Zh-822
Speaker: Nick Vikander  (University of Edinburgh)
Theme: «TEAM-BASED INCENTIVES IN PROBLEM-SOLVING ORGANIZATIONS»

Abstact: This paper investigates a repeated employment relationship between a principal and agents hired to solve a series of problems. Each agent works independently, but the principal can choose to pay a team incentive bonus to all agents if any one of them solves a problem. We show that, under relational contracts, the principal will prefer team incentives to individual incentives whenever problems are difficult to solve and the cost of effort is moderate relative to the value of solving a problem. Team incentives can help with credibility by smoothing bonus payments over time. They also create a problem of free-riding and moral hazard, but its negative impact is limited by mutual monitoring between agents. If team size is endogenous, team incentives can increase efficiency by allowing the principal to motivate a greater number of agents. However, in some such cases, the principal still prefers individual incentives because they allow him to appropriate more surplus.

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