DP4702 Joint Production in Teams

Author(s): Marco Battaglini
Publication Date: October 2004
Keyword(s): incentives, moral hazard, teams, theory of the firm
JEL(s): D23, D82, J33, L23
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4702

Consider Holmström.s moral hazard in teams problem when there are n agents, each agent i has a a(i)-dimensional strategy space and output can be m-dimensional. We show that a compensation mechanism that satisfies budget balance, limited liability and implements an efficient allocation generically exists if and only if Sum_a(i)/(n-1)< m. When this condition is satisfied, the optimal mechanism discourages collusive behavior and, under a weak condition, filters out inefficient equilibria.