Team Production in Competitive Labor Markets with Adverse Selection
39 Pages Posted: 2 Jun 2014
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Team Production in Competitive Labor Markets with Adverse Selection
Date Written: February 2014
Abstract
Team production is a frequent feature of modern organizations. Combined with team incentives, team production can create externalities among workers, since their utility upon accepting a contract depends on their teams performance and therefore on their colleagues productivity. We study the effects of such externalities in a competitive labor market if workers have private information on their productivity. We find that in any competitive equilibrium there must be Pareto-efficient separation of workers according to their productivity. We further find that externalities facilitate equilibrium existence, where under a particular condition on workers indifference curves even arbitrarily small externalities guarantee equilibrium existence.
Keywords: adverse selection, competition, externality, team production
JEL Classification: D24, D82, J30, L22
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