Ability, Team Composition, and Moral Hazard: Evidence from the Laboratory

An important question when assigning individuals to groups concerns the benefits and drawbacks of homogeneity and heterogeneity with respect to the group members’ ability levels. We design a laboratory experiment, in which we assume that the output is just the sum of the group members’ performances. This allows us to isolate the impact of ability-based matching principles on the degree of moral hazard. In line with theories on team cohesion, we find that the degree of moral hazard is larger in heterogeneous groups. As the incentive structure is the same, this can exclusively be attributed to motivational effects. We consider two settings, one where the roles to high- and low-productivity levels are randomly assigned, and one where those roles are earned. Results are robust with respect to these two role assignments.