Fostering Collaboration

Abstract

We study project development and selection by an organization whose members prefer different projects. The organization faces a basic trade-off between fostering collaboration among its members and efficiently adapting its decisions to its circumstances. If the organization commits to choosing the project that is most profitable ex post, it undermines the members’ motive to collaborate, causing ex-ante inefficiency. We solve for the organization’s optimal selection rule. It entails an early phase of intense competition, followed by a permanent regime of collaboration. In service to ex-ante optimality, arbitrarily severe ex-post inefficiencies must be tolerated.

Keywords: project selection, internal competition, team production, mechanism design without transfers, strategic experimentation

JEL Classification: D73, D86, D72, D82