American Economic Review: Vol. 91 No. 3 (June 2001)


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Optimal Incentives for Teams

Article Citation

Che, Yeon-Koo, and Seung-Weon Yoo. 2001. "Optimal Incentives for Teams." American Economic Review, 91(3): 525-541.

DOI: 10.1257/aer.91.3.525


Much of the existing theory of incentives describes a static relationship that lasts for just one transaction. This static assumption is not only unrealistic, but the resulting predictions appear to be at odds with many work organizations. The current paper introduces possible long-term interaction among agents, and studies how the design of explicit incentives and work organizations can exploit, and interact with, the implicit incentives generated by the repeated interaction of the agents. The optimal incentive scheme is shown to display observed features of the increasingly popular "teams," such as the use of low-powered, group incentives.

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Che, Yeon-Koo (U WI)
Yoo, Seung-Weon (Hong Kong U Science & Technology)

JEL Classifications

M54: Personnel Economics: Labor Management
D23: Organizational Behavior; Transaction Costs; Property Rights
J33: Compensation Packages; Payment Methods
J41: Labor Contracts

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