Relative Evaluation Scheme for Teams and Multi-tasks

Abstract: One of the solutions to the moral hazard in team production is to divide the firm into more than two teams and make them compete. We extend this relative evaluation scheme for teams so that we can pin down the optimal incentive power explicitly. We find that the firm should provide a higher-powered incentive when the firm's size grows and the degree of complementarity of each team's output increases, and this explains why large companies tend to have a more skewed remuneration menu. We further extend the model to the cases where workers have to deal with two kinds of multi-tasks: the first is to help their coworkers and the second is they face a general and team-specific jobs. We find that, in the former case, given a higher-powered incentive, a worker tends to put more effort into help, and in the latter case, he/she tends to put more effort into the team-specific job and less into the general job. This result implies that the firm sometimes would be better off by providing a lower-powered incentive.