DP9833 Team Production in Competitive Labor Markets with Adverse Selection
|Author(s):||Michael Kosfeld, Ferdinand Von Siemens|
|Publication Date:||February 2014|
|Keyword(s):||adverse selection, competition, externality, team production|
|JEL(s):||D24, D82, J30, L22|
|Programme Areas:||Labour Economics, Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=9833|
Team production is a frequent feature of modern organizations. Combined with team incentives, team production can create externalities among workers, since their utility upon accepting a contract depends on their team?s performance and therefore on their colleagues? productivity. We study the effects of such externalities in a competitive labor market if workers have private information on their productivity. We find that in any competitive equilibrium there must be Pareto-efficient separation of workers according to their productivity. We further find that externalities facilitate equilibrium existence, where under a particular condition on workers? indifference curves even arbitrarily small externalities guarantee equilibrium existence.