Abstract

https://ssrn.com/abstract=2527952
 


 



Project Characteristics, Incentives and Team Production


Richard Fu


University of Alabama at Birmingham - School of Business

Ajay Subramanian


Georgia State University

Anand Venkateswaran


Northeastern University - Finance and Insurance Area

November 19, 2014

Forthcoming in Management Science
Northeastern U. D’Amore-McKim School of Business Research Paper No. 2527952

Abstract:     
We develop a model to show how agency conflicts, free rider effects and monitoring costs interact to affect optimal team size and workers' incentive contracts. Team size increases with project risk, decreases with profitability, and decreases with monitoring costs as a proportion of output. Our predictions are consistent with empirical evidence that firm-specific risk has increased over time and average corporate earnings have declined, while firms' organizational structures have also flattened. The predicted effects of monitoring costs on team size are supported by evidence that improvements in information technology that are likely to lower monitoring costs lead to larger teams. Further, firms with relatively more intangible assets, where monitoring costs are likely to be higher, are smaller. Optimal incentive intensities decrease with risk and increase with profitability. The endogenous determination of team size accentuates the positive effects of a decline in risk and an increase in profitability on incentives.

Number of Pages in PDF File: 34

Keywords: Teams, Incentives, Moral Hazard, Monitoring, Contracting, Production

JEL Classification: L22, L14, D21, D82, M11


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Date posted: November 21, 2014  

Suggested Citation

Fu, Richard and Subramanian, Ajay and Venkateswaran, Anand, Project Characteristics, Incentives and Team Production (November 19, 2014). Forthcoming in Management Science; Northeastern U. D’Amore-McKim School of Business Research Paper No. 2527952. Available at SSRN: https://ssrn.com/abstract=2527952

Contact Information

Richard Fu
University of Alabama at Birmingham - School of Business ( email )
United States
Ajay Subramanian (Contact Author)
Georgia State University ( email )
Depts. of Finance & Risk Management and Insurance
P.O. Box 4050
Atlanta, GA 30303
United States
404-413-7483 (Phone)
HOME PAGE: http://robinson.gsu.edu/profile/ajay-subramanian/
Anand Venkateswaran
Northeastern University - Finance and Insurance Area ( email )
Boston, MA 02115
United States

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