Moral Hazard in Remote Teams

55 Pages Posted: 22 Sep 2020 Last revised: 27 Sep 2021

See all articles by Emilio Bisetti

Emilio Bisetti

Hong Kong University of Science and Technology (HKUST)

Benjamin Tengelsen

affiliation not provided to SSRN

Ariel Zetlin-Jones

Carnegie Mellon University; Federal Reserve Bank of Minneapolis

Date Written: August 27, 2020

Abstract

We re-examine the ability of teams to credibly self-impose group punishments and
prevent free-riding when individual inputs are unobservable. Holmström (1982) shows
that group punishments are not credible in static games. We formulate self-imposed
group punishments as performance under-reporting by the team, and we ask whether
the team can credibly under-report in a repeated game. We develop simple strategies
that sustain under-reporting, and show that the threat of under-reporting improves welfare
only if team members’ preferences between shirking and team output consumption
are non-separable. Our results suggest that self-assessments can replace increased managerial
monitoring and mitigate free-riding in remote work environments.

Keywords: Team Production, Work from Home, Limited Commitment, Repeated Game

JEL Classification: C72, C73, D43, D82

Suggested Citation

Bisetti, Emilio and Tengelsen, Benjamin and Zetlin-Jones, Ariel, Moral Hazard in Remote Teams (August 27, 2020). Available at SSRN: https://ssrn.com/abstract=3683876 or http://dx.doi.org/10.2139/ssrn.3683876

Emilio Bisetti (Contact Author)

Hong Kong University of Science and Technology (HKUST) ( email )

Clear Water Bay, Kowloon
Hong Kong

Benjamin Tengelsen

affiliation not provided to SSRN

Ariel Zetlin-Jones

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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