Regulating Spillovers in Teamwork

Abstract

We study team incentives with positive spillovers and rewards based on ex-post credit for collective success. Compared to ex-ante efficient credit allocation, higher-ability or lower-cost agents are over-credited in equilibrium and, thus, over-motivated for team success when the spillover rate is low and under-credited/under-motivated when it is high. Therefore, organizations may optimally limit positive spillovers between team members by regulating peer communication and transparency. Alternatively, organizations may carefully compose teams to diffuse credit-sharing concerns. These concerns also make lower-ability agents less likely to invite collaborators or choose the most capable when they own the project.