Group formation: Contribute much with effort and little with ability

Group formation: Contribute much with effort and little with ability

Wednesday, 12 May 2021, 16:00-17:15

Room: Zoom

Presenter: Chalioti Eva, Yale University

his paper studies compensation contracts offered to risk-averse agents when an agent's individual production is influenced by her colleagues' effort and unknown ability. We examine the conditions under which a principal who commits herself to a life-time salary path induces an agent to help or sabotage her colleague. The principal may optimally allow for little sabotage in order to decrease the required insurance and to shift agent's focus on her own project. This paper also discusses group formation. It argues that firm profitability increases when production depends much on agents' effort and little on their abilities. If commitment is not feasible, agents have incentives to help or sabotage because of career concerns. Such reputational incentives to influence market perception about the current peer's ability arise for permanently paired agents but also for agents who will be paired with another worker in the next period.

 

Zoom link: https://zoom.us/j/98193710479?pwd=V1hhZmNtRjlxaUNTdGFvRHArbi9idz09

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