Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2024

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Free-riding and Unequal Pay in Symmetric Teams

Huseyin Yildirim*

Building: Rotman School of Management
Room: Room 1065
Last modified: 2024-05-02

Abstract


This paper studies optimal incentive pay in teams where agents exert substitute efforts. It shows that the principal may unequally reward identical agents for collective success to control the free-rider problem. The unequal pay effectively creates a "team leader" who overworks and symmetric "followers" who underwork. Such leader-follower teams are more likely to emerge if: (1) agents are more patient, fewer in number, or have larger productivity spillovers; (2) the principal cares more about or is less patient for project success. These findings contrast with the recent literature pinpointing complementary efforts as the source of unequal pay in symmetric teams.

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