Joint Production in Teams
33 Pages Posted: 29 Dec 2004
Date Written: October 2004
Abstract
Consider Holmstrom's moral hazard in teams problem when there are n agents, each agent i has an a(i)-dimensional strategy space and output can be m-dimensional. We show that a compensation mechanism that satisfies budget balance, limited liability and implements an efficient allocation generically exists if and only if Sum_a(i)/(n-1)< m. When this condition is satisfied, the optimal mechanism discourages collusive behavior and, under a weak condition, filters out inefficient equilibria.
Keywords: Teams, moral hazard, incentives, theory of the firm
JEL Classification: D23, D82, J33, L23
Suggested Citation: Suggested Citation
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