7 - Team Work Flashcards

1
Q

Which factors increase gains from teamwork?

A
  • strong differences in skills and information between workers
  • high relevance of one person’s knowledge for other workers
  • low communication costs
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2
Q

What does this graph show?

A

Person 4 has an absolute advantage in design & operations.

  • If person 2 has a question about design, person 4 is a better resource than person 3.
  • If person 3 has a question about operations, person 4 is a better resource than person 2.

A hierarchical organization, where person 4 is the supervisor to whom all go to consult, could work best.

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3
Q

What does this graph show?

A
  • person 2 is strong on operational but weak on design, the opposite is true for person 3.
  • If person 2 (person 3) needs to think about design (operations), person 3 (person 2) is good to ask.
  • Team communication seems best because each person has an absolute advantage in one of the two skills. When the design expert works with the operations expert, they produce a new product design that is better than the two individuals could have produced working independently.
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4
Q

What are other advantages of teamwork?

A
  • gains from specialization: workers can specialize in a narrow set of tasks, getting better and faster at these tasks (Adam Smith’s pin factory) -> specialization can reinforce skill complementarities
  • nonpecuniary benefits: people might enjoy working with others because work becomes less repetitive and more fun
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5
Q

What are disadvantages of teamwork?

A
  • teams can be time consuming to organize & coordinate
  • assessing individual performance becomes harder -> free riding can exacerbate moral hazard problems relative to independent work
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6
Q

What is the free-riding problem in teams(firms)?

A
  • Team member i chooses ei to maximize :
    1/n * q − c(ei),
    taking the other team members’ efforts as given.
  • Dominant strategy: ei = 1/n for all i
  • Effort is inefficiently low because team members do not internalize the positive externality of effort on other team members. -> free riding
  • The larger the team, the more severe is the free riding problem.
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7
Q

How can the owner of the firm overcome the free-rider problem?

A
  • Firm owner offers each team member a share si of the team output and a flat wage fi.
  • The firm owner sets si = 1 and extracts the team members’ surplus by a negative flat wage (similar to a selling-the-firm contract with one agent).
  • The free riding problem is solved because the firm owner can act as a budget breaker.
  • But: Such contracts are usually not feasible in practice.
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8
Q

How can teams establish and enforce work norms?

A
  • within the team, individual efforts are often observable ) mutual monitoring
  • shirkers can be punished, e.g., by team pressure or future non-cooperation
  • idea is similar to relational contracting
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