DP4702 Joint Production in Teams

Author(s): Marco Battaglini

Publication Date: October 2004

Keyword(s): teams , moral hazard , incentives , theory of the firm

JEL(s): D23 , D82 , J33 , L23

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP4702.asp

Consider Holmström.s moral hazard in teams problem when there are n agents, each agent i has a 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.