Career Concerns in Teams

Abstract

We study the impact of changes in the commitment power of a principal on cooperation among agents, in a model in which the principal and her agents are symmetrically uncertain about the agents' innate abilities. When the principal cannot commit herself to long-term wage contracts, two types of implicit incentives emerge. First, agents become concerned about their perceived personal productivity. Second, agents become more reluctant to behave cooperatively - they have an incentive to "sabotage" their colleagues. Anticipating this risk, and in order to induce the desired level of cooperation, the principal must offer more collectively oriented incentive schemes. We also show that temporary workers are not affected by the sabotage effect and that as a result, their incentives are more individually oriented.

Keywords: Teamwork, Career concerns, Sabotage, Commitment, Collective orientation of incentive schemes

JEL Classification: J33, D23, M12