Uncertainty-Driven Cooperation

Theoretical Economics 15 (2020), 1023–1058 https://econtheory.org/ojs/index.php/te/article/viewFile/20201023/27652/800

Posted: 18 Jul 2017 Last revised: 28 Jul 2020

See all articles by Doruk Cetemen

Doruk Cetemen

Collegio Carlo Alberto

Ilwoo Hwang

University of Miami - School of Business Administration - Department of Economics

Ayca Kaya

University of Miami

Date Written: January 23, 2019

Abstract

We consider dynamic team production in the presence of uncertainty. Team members receive interim feedback that depends on both their current effort level and the project’s uncertain prospects. In this environment, each member can encourage the others by making them more optimistic about the project’s prospects. We study the extent to which this incentive counters the usual free-riding incentive. Restricting the agents’ access to feedback can increase their equilibrium effort levels by mitigating the ratchet effect. In this case, using joint performance measures can be beneficial even when individual measures are available.

Keywords: Team production, free-riding, uncertainty, learning.

JEL Classification: C72, C73, D83

Suggested Citation

Cetemen, Doruk and Hwang, Ilwoo and Kaya, Ayca, Uncertainty-Driven Cooperation (January 23, 2019). Theoretical Economics 15 (2020), 1023–1058 https://econtheory.org/ojs/index.php/te/article/viewFile/20201023/27652/800 , Available at SSRN: https://ssrn.com/abstract=3000269 or http://dx.doi.org/10.2139/ssrn.3000269

Doruk Cetemen

Collegio Carlo Alberto

Piazza Arbarello 8, Torino
Torino, Torino 10122
Italy
+39 011 670 5000 (Phone)
+39 011 670 5082 (Fax)

HOME PAGE: http://https://www.carloalberto.org/

Ilwoo Hwang (Contact Author)

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

Ayca Kaya

University of Miami ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

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