Team Formation and Organization – Economics

 

 

University of California

Los Angeles

Team Formation and Organization

A dissertation submitted in partial satisfaction

of the requirements for the degree

Doctor of Philosophy in Economics

David Masiur Rahman

by

2005

c(cid:176) Copyright by

David Masiur Rahman

2005

The dissertation of David Masiur Rahman is approved.

Sushil Bikchandani

Bryan Ellickson

David K. Levine

Joseph M. Ostroy, Committee Chair

University of California, Los Angeles

2005

ii

To Jenny, with all my love.

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Table of Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

2

3

4

6

7

1.1 Economic Team Formation and Organization . . . . . . . . . . . .

1.1.1 Economic Team Formation . . . . . . . . . . . . . . . . . .

1.1.2 Economic Organization . . . . . . . . . . . . . . . . . . . .

1.2 Location in the Literature . . . . . . . . . . . . . . . . . . . . . .

1.2.1 Knight’s Uncertainty and Profit . . . . . . . . . . . . . . .

1.2.2 Contracts, Property Rights, and the Firm . . . . . . . . .

10

1.2.3 Clubs and Teams in General Equilibrium . . . . . . . . . .

13

1.2.4 General Equilibrium with Incentive Constraints . . . . . .

15

1.3 Overview of the Dissertation . . . . . . . . . . . . . . . . . . . . .

16

1.3.1 Research Agenda . . . . . . . . . . . . . . . . . . . . . . .

17

1.3.2 Dissertation Outline

. . . . . . . . . . . . . . . . . . . . .

18

2 Inactive versus Active Teams . . . . . . . . . . . . . . . . . . . . . 21

2.1 Team Formation and Trade with Inactive Teams . . . . . . . . . .

23

2.1.1 The Assignment of Individuals to Teams . . . . . . . . . .

24

2.1.2 Team Membership as a Public Good . . . . . . . . . . . .

26

2.1.3 Price Taking Equilibrium . . . . . . . . . . . . . . . . . . .

29

2.1.4 Market Trading with Inactive Teams

. . . . . . . . . . . .

31

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2.2 Team Production with Active Teams . . . . . . . . . . . . . . . .

34

2.2.1 A Team Production Technology . . . . . . . . . . . . . . .

35

2.2.2 Transparent Teams . . . . . . . . . . . . . . . . . . . . . .

37

2.2.3

Introducing Incentive Constraints . . . . . . . . . . . . . .

39

2.2.4 A Remark about Trading Possibilities . . . . . . . . . . . .

40

3 Organized Competition with Opaque Teams

. . . . . . . . . . . 42

3.1 Opaque Teams with a Zeroth Player

. . . . . . . . . . . . . . . .

45

3.1.1 The Team’s Problem . . . . . . . . . . . . . . . . . . . . .

46

3.1.2 One Active Player

. . . . . . . . . . . . . . . . . . . . . .

50

3.1.3 Two or More Active Players . . . . . . . . . . . . . . . . .

52

3.2 Communication with a Mediating Principal

. . . . . . . . . . . .

57

3.2.1 Games with Communication . . . . . . . . . . . . . . . . .

58

3.2.2 The Zeroth Player as a Mediating Principal

. . . . . . . .

62

3.3 Three Notions of Walrasian Equilibrium . . . . . . . . . . . . . .

63

3.3.1 Price and Contract Taking Equilibrium . . . . . . . . . . .

64

3.3.2 Contractual Pricing Equilibrium . . . . . . . . . . . . . . .

67

3.3.3 Equilibrium Equivalence . . . . . . . . . . . . . . . . . . .

70

3.3.4 Occupational Equilibrium . . . . . . . . . . . . . . . . . .

73

3.3.5 Applications . . . . . . . . . . . . . . . . . . . . . . . . . .

77

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4 Economic Organization of Contractual Teams . . . . . . . . . . . 81

4.1 Public Monitoring and Metering Input Productivity . . . . . . . .

83

4.1.1 The Team’s Problem . . . . . . . . . . . . . . . . . . . . .

85

4.1.2 Transparent Teams and as-if Binding Contracts . . . . . .

88

4.1.3 Private Contracts and Incentive Goods . . . . . . . . . . .

89

4.1.4 Attainable Actions . . . . . . . . . . . . . . . . . . . . . .

96

4.2 Private Monitoring and Metering Rewards . . . . . . . . . . . . . 103

4.2.1 The Team’s Problem . . . . . . . . . . . . . . . . . . . . . 105

4.2.2

Sequentially Rational Reporting . . . . . . . . . . . . . . . 108

4.2.3 Robinson and Friday Revisited . . . . . . . . . . . . . . . 115

4.2.4

Selecting a Monitor . . . . . . . . . . . . . . . . . . . . . . 121

4.3 Private Information and Mechanism Design . . . . . . . . . . . . 126

4.3.1 The Team’s Problem . . . . . . . . . . . . . . . . . . . . . 128

4.3.2 A Model of Team Leadership . . . . . . . . . . . . . . . . 132

4.3.3 Concluding Comments . . . . . . . . . . . . . . . . . . . . 139

5 Translucent Teams and Residual Claims . . . . . . . . . . . . . . 141

5.1 Examples of Translucent Teams . . . . . . . . . . . . . . . . . . . 143

5.1.1 The Private Information Problem . . . . . . . . . . . . . . 144

5.1.2 Adverse Selection and Residual Claims . . . . . . . . . . . 147

5.1.3 Moral Hazard and Incentives to Innovate . . . . . . . . . . 149

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5.2 Translucent Teams with Private Information . . . . . . . . . . . . 151

5.2.1 The Planner’s Problem . . . . . . . . . . . . . . . . . . . . 152

5.2.2 Walrasian Equilibrium . . . . . . . . . . . . . . . . . . . . 156

5.2.3 Equilibrium Existence

. . . . . . . . . . . . . . . . . . . . 159

5.2.4

Incentive Properties

. . . . . . . . . . . . . . . . . . . . . 162

5.3 Applications and Special Cases

. . . . . . . . . . . . . . . . . . . 165

5.3.1 Dim Opportunists and Fearless Leaders . . . . . . . . . . . 166

5.3.2 Equilibrium Efficiency with the Incentive Good . . . . . . 168

5.3.3 Equilibrium with Moral Hazard . . . . . . . . . . . . . . . 169

6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

6.1 A Critique of the Theory . . . . . . . . . . . . . . . . . . . . . . . 173

6.1.1 Recapitulation of Results . . . . . . . . . . . . . . . . . . . 174

6.1.2 Reconciliation with the Literature . . . . . . . . . . . . . . 177

6.1.3

Shortcomings and Questions Unanswered . . . . . . . . . . 179

6.2 Political and Institutional Implications . . . . . . . . . . . . . . . 180

6.2.1 The Organization of Team Production . . . . . . . . . . . 181

6.2.2 The Incentive Role of Residual Ownership . . . . . . . . . 183

6.2.3 The Separation of Ownership and Control

. . . . . . . . . 185

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

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