Econometrica: Jul 1973, Volume 41, Issue 4

Incentives in Teams

https://doi.org/0012-9682(197307)41:4<617:IIT>2.0.CO;2-E
p. 617-631

Theodore Groves

This paper analyzes the problem of inducing the members of an organization to behave as if they formed a team. Considered is a conglomerate-type organization consisting of a set of semi-autonomous subunits that are coordinated by the organization's head. The head's incentive problem is to choose a set of employee compensation rules that will induce his subunit managers to communicate accurate information and take optimal decisions. The main result exhibits a particular set of compensation rules, an optimal incentive structure, that leads to team behavior. Particular attention is directed to the informational aspects of the problem. An extended example of a resource allocation model is discussed and the optimal incentive structure is interpreted in terms of prices charged by the head for resources allocated to the subunits.

Log In To View Full Content

Back