Team Production in Competitive Labor Markets with Adverse Selection

39 Pages Posted: 2 Jun 2014

See all articles by Michael Kosfeld

Michael Kosfeld

Goethe University Frankfurt; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); University of Bonn - Center for Development Research (ZEF)

Ferdinand von Siemens

Goethe University Frankfurt; CESifo (Center for Economic Studies and Ifo Institute)

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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 team’s 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

Suggested Citation

Kosfeld, Michael and von Siemens, Ferdinand, Team Production in Competitive Labor Markets with Adverse Selection (February 2014). CEPR Discussion Paper No. DP9833, Available at SSRN: https://ssrn.com/abstract=2444834

Michael Kosfeld (Contact Author)

Goethe University Frankfurt ( email )

Faculty of Economics and Business Administration
Theodor-W.-Adorno-Platz 4
Frankfurt am Main, 60323
Germany

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

University of Bonn - Center for Development Research (ZEF) ( email )

Walter-Flex-Str. 3
Bonn, NRW 53113
Germany

Ferdinand Von Siemens

Goethe University Frankfurt ( email )

Faculty of Economics and Business Administration
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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