How Competition Controls Team Production: The Case of Fishing Firms
Pompeu Fabra University, Economics and Business Working Paper Series 261
39 Pages Posted: 27 May 1998 Last revised: 9 Dec 2019
Under team production, those who monitor individual productivity are usually the only ones compensated with a residual that varies with the performance of the team. This pattern is efficient, as is shown by the prevalence of conventional firms, except for small teams and when specialized monitoring is ineffective. Profit sharing in repeated team production induces all team members to take disciplinary action against underperformers through switching and separation decisions, however. Such action provides effective self-enforcement when the markets for team members are competitive, even for large teams using specialized monitoring. The traditional share system of fishing firms shows that for this competition to provide powerful enough incentives the costs of switching teams and measuring team productivity must be be low. Risk allocation may constrain the organizational design defined by the use of a share system. It does not account for its existence, however.
JEL Classification: J33, J41, L14, L20, Q22
Suggested Citation: Suggested Citation