Dynamic Incentive Effects of Team Formation: Experimental Evidence

51 Pages Posted: 5 Dec 2016

See all articles by Thomas Gall

Thomas Gall

University of Southampton - Division of Economics

Xiaocheng Hu

University of Southampton

Michael Vlassopoulos

University of Southampton; IZA -- Institute for the Study of Labor

Abstract

Optimal team composition has been the focus of exhaustive analysis, academic and otherwise. Yet, much of this analysis has ignored possible dynamic effects: e.g., anticipating that team formation is based on prior performance will affect prior performance. We test this hypothesis in a lab experiment with two stages of a real effort task. Participants first work individually without monetary incentives and are then assigned to teams of two where compensation is based on team performance. Our results are consistent with a simple investment-cum-matching model: pairing the worst performing individuals with the best yields 20% lower first stage effort than random matching. Pairing the best with the best, however, yields 5% higher first stage effort than random matching. In line with the theory the latter result is more pronounced when the task has less scope for learning-by-doing. Moreover, pairing the best with the best achieves the same effort response as having explicit monetary incentives in the first stage.

Keywords: matching, team formation, performance, dynamic incentives

JEL Classification: C78, C91, M54

Suggested Citation

Gall, Thomas and Hu, Xiaocheng and Vlassopoulos, Michael, Dynamic Incentive Effects of Team Formation: Experimental Evidence. IZA Discussion Paper No. 10393, Available at SSRN: https://ssrn.com/abstract=2879800

Thomas Gall (Contact Author)

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom

Xiaocheng Hu

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, SO17 1LP
United Kingdom

Michael Vlassopoulos

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

IZA -- Institute for the Study of Labor ( email )

Bonn

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