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.