Supermodularity and incentive reversal in teams

Abstract

This paper takes a new look at the issue of incentive reversal in (strategic) team games, by relying on supermodularity techniques. In a setting with no contractual possibilities, we provide minimal sufficient conditions for one or both players to supply less effort in exogenously more productive environments, at the two extremal Nash equilibria. Unlike the existing literature, the analysis does not utilize concavity and other unnecessary assumptions and explicitly takes into account existence and possible multiplicity of pure-strategy Nash equilibria. We derive respective sufficient conditions for strong and weak incentive reversal for asymmetric games under strategic complementarity and substitutability respectively. We also consider incentive reversal for a broad class of symmetric games. These parsimonious conditions allow for a more transparent intuitive interpretation of the results.