Diversity in Teams

Abstract

From corporate boards to innovative teams, the benefits of diversity are increasingly being praised. In this paper, we investigate how optimal cognitive diversity depends on the nature of production and the objective criterion employed. With a utilitarian objective, when the output of the most productive worker becomes relatively more important, the optimal diversity weakly increases. To capture the preferences of a public service provider, a regulated firm or a very risk averse manager, we also consider a Rawlsian objective. In this case, in contrast to the utilitarian results, as the output of the most productive worker becomes relatively more important, the optimal diversity may decrease. Furthermore, for a fixed production function, the optimal diversity is weakly higher with the Rawlsian objective than with the utilitarian one.

Keywords: cognitive diversity, submodular, supermodular, teams, utilitarian, Rawlsian objective

JEL Classification: L23, M14