The economics of career concerns in teamwork

Abstract

This paper examines incentives in teams of career-concerned members, where effort and talent can be substitutes (Holmström, 1999) or complements (Dewatripont et al., 1999). It is shown that the degree of effort-talent complementarity determines which team member exerts more effort and thus gains or loses more reputation following team performance. The paper argues that organizations can boost incentives by promoting concern for collective reputation. Strategies to achieve this include facilitating team cooperation, limiting external competition for individual talent, and positively sorting talent into teams. The paper further explores optimal performance ratings to motivate teams when the organization has easy access to individual outputs. These ratings generally deviate from team output and may even induce competition, depending on the signal-to-noise ratio and talent correlations.