Career Concerns in Teams

TLDR

When principals and agents are symmetrically uncertain about agents' innate abilities, workers experience career concerns. We investigate how changes in the principal’s commitment power affect cooperation among team agents. To mitigate this risk, the principal offers more collectively oriented incentive schemes. When the principal cannot commit to long‑term wage contracts, an implicit sabotage incentive arises, causing agents to be reluctant to help teammates, whereas temporary workers are unaffected and have more individually oriented incentives.

Abstract

We investigate how changes in the commitment power of a principal affect cooperation among agents who work in a team. When the principal and her agents are symmetrically uncertain about the agents' innate abilities, workers have career concerns. Then, unless the principal can commit herself to long‐term wage contracts, an implicit sabotage incentive emerges. Agents become reluctant to help their teammates. Anticipating this risk, and in order to induce the desired level of cooperation, the principal offers more collectively oriented incentive schemes. Temporary workers, though, are not affected by the sabotage effect, and their incentives are more individually oriented.