Individual versus Team Production with Social Preferences

Banerjee, Swapnendu and Chakraborty, Somenath (2022): Individual versus Team Production with Social Preferences.

Abstract

This paper examines the impact of social preferences on the choice between individual production and team production. An inequity-averse principal can hire a single or a team of two agents to work on a single project. The agents are inequity-averse with respect to the principal. In this framework we show that even without ‘team synergy’ a moderately inequity-averse principal can opt for team production. Thus we provide an additional rationale for the empirically observed prevalence of team based production in terms of the possible existence of social preferences. Keeping social preferences fixed, we show that team production is likely in long-term employment relationships compared to short-run relationships when the principal is moderately inequity-averse. For sufficiently inequity-averse principal the incentive for team production remains the same across short-term and long-term relationships.

• Item Type: MPRA Paper
• Language: English
• Keywords: Other regarding preferences, inequity aversion, team contracts, Synergy
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M5 - Personnel Economics > M52 - Compensation and Compensation Methods and Their Effects

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