Communities, Co-Ops, and Clubs: Social Capital and Incentives in Large Collective Organizations

34 Pages Posted: 3 May 2018

See all articles by Joshua Jacobs

Joshua Jacobs

Duke University

Aaron Kolb

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Curtis R. Taylor

Duke University - Department of Economics

Date Written: April 3, 2018

Abstract

We study a continuous-time organization design problem. Each member's output is an imperfect signal of his underlying choice of effort, and each member's utility from remaining in the organization is endogenous to the output of other agents. Monetary transfers are assumed infeasible. Incentives can be provided only through two potential channels: removal due to poor performance (the stick) and rewarding good performance by allowing a "vacation" or respite (the carrot). We derive the steady-state distribution of continuation utilities of agents in the organization and show that both the stick and the carrot are used to provide incentives under an optimal design. Moreover, the optimal organization may be implemented by associating continuation utilities with a reputation system that tracks each member's performance over time.

Suggested Citation

Jacobs, Joshua and Kolb, Aaron and Taylor, Curtis R., Communities, Co-Ops, and Clubs: Social Capital and Incentives in Large Collective Organizations (April 3, 2018). Kelley School of Business Research Paper No. 18-41. Available at SSRN: https://ssrn.com/abstract=3155391 or http://dx.doi.org/10.2139/ssrn.3155391

Joshua Jacobs

Duke University

100 Fuqua Drive
Durham, NC 27708-0204
United States

Aaron Kolb (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States

HOME PAGE: http://https://sites.google.com/site/aaronmkolb/

Curtis R. Taylor

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1827 (Phone)
919-684-8974 (Fax)

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