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The optimal assortativity of teams inside the firm

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  • Ashwin Kambhampati
  • Carlos Segura‐Rodriguez

Abstract

How does a profit‐maximizing manager form teams and compensate workers when workers have private information about their productivity and exert hidden effort once in a team? We study a team‐production model in which positive assortative matching is both efficient and profit‐maximizing under pure adverse selection and pure moral hazard. We show that the interaction of adverse selection and moral hazard can lead to nonassortative matching if complementarities are sufficiently weak. When this is the case, the manager may prefer to delegate matching, allowing workers to sort themselves into teams.

Suggested Citation

  • Ashwin Kambhampati & Carlos Segura‐Rodriguez, 2022. "The optimal assortativity of teams inside the firm," RAND Journal of Economics, RAND Corporation, vol. 53(3), pages 484-515, September.
    • Handle: RePEc:bla:randje:v:53:y:2022:i:3:p:484-515
    DOI: 10.1111/1756-2171.12419
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