Worker Visibility and Firms' Retention Policies

Simon Dato (University of Bonn)
Andreas Grunewald (Frankfort School of Finance and Management)
Matthias Kräkel (University of Bonn)

Abstract : In the last two decades, the widespread use of web-based social networks has led to a higher visibility of workers to the labor market. We theoretically and experimentally analyze the consequences of such increased labor market transparency for the efficiency of job assignments, the wages of workers, and firm profits. Our theoretical results show that higher visibility of workers increases the efficiency of job assignments, leads to a redistribution of income between workers of different ability, and increases overall surplus. Our experimental findings generally support the theoretical results with the exception that increased visibility leads to higher worker turnover such that surplus does not increase.

Chasing Lemons: Competition for Talent Under Asymmetric Information

Daniel Ferreira (London School of Economics)
Radoslawa Nikolowa (Queen Mary University of London)

Abstract : We develop a model of competition for managerial talent in which firms asymmetrically learn about the ability of their managers. In equilibrium, firms poach talent from competitors, even in the absence of gains from trade. Our main result is that firms inefficiently chase lemons: some poached managers are less productive in their new jobs. Our model provides an equilibrium explanation for the apparent lack of portability of talent observed among some finance workers, such as security analysts and mutual fund managers. The model has predictions linking firm heterogeneity to managerial turnover, compensation, and the distribution of talent.

Optimal Team Composition: Diversity to Foster Implicit Team Incentives

Jonathan Glover (Columbia University)
Eunhee Kim (City University of Hong Kong)

Abstract : We study optimal team design. In our model, a principal assigns either heterogeneous agents to a team (a diverse team) or homogenous agents to a team (a specialized team) to perform repeated team production. We assume that specialized teams exhibit a productive substitutability (e.g., interchangeable efforts with decreasing returns to total effort), whereas diverse teams exhibit a productive complementarity (e.g., cross-functional teams). Diverse teams have an inherent advantage in fostering desirable implicit/relational incentives that team members can provide to each other (tacit cooperation). In contrast, specialization both complicates the provision of cooperative incentives by limiting the punishment agents can impose on each other for short expected career horizons and fosters undesirable implicit incentives (tacit collusion) for long expected horizons. As a result, expected compensation is first decreasing and then increasing in the discount factor for specialized teams, while expected compensation is always decreasing in the discount factor for diverse teams. We use our results to develop empirical implications about the association between team tenure and team composition, pay-for-performance sensitivity, and team culture.

Organizational Design with Portable Skills

Luca Picariello (University of Naples Federico II)

Abstract : Employees learn from the tasks they perform, and in the process they accumulate human capital that is potentially portable. If companies cannot commit to specific task assignments, they may have the incentive to assign workers to tasks that reduce the cost of retaining them but do not maximize their productivity. In contrast, equity partnerships assign tasks efficiently to their partners, because their remuneration increases with their talent and with the portability of their human capital. This provides a novel rationale for the widespread presence of partnerships in professional services and for the transition from equal sharing towards performance-based remuneration systems.