Diversity in Teams

Abstract

What is the optimal diversity of expertise in a team? Prat (2002) shows that a supermodular production function (which describes strategic complementarity between individual outputs) implies a lower optimal diversity than a submodular function (which corresponds to strategic substitutability). We investigate how optimal diversity changes as the production function adjusts continuously from a supermodular to a submodular function. The Utilitarian objective gives an intuitive monotonic relationship. However, the Rawlsian objective, an objective that optimizes the worst scenario, generates a non-monotonic relationship: optimal diversity may fall with increasing weighting on the submodular component of the production function.

Keywords: Cognitive Diversity, Supermodular and Submodular Functions, Rawlsian Objective

JEL Classification: L23, M14