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Vertically Splitting a Firm: Promotion and Demotion in a Team Production Experiment

Author

Listed:
  • Tibor Neugebauer
  • Susana Cabrera
  • Enrique Fatas
  • Juan A. Lacomba

    (LSF)

Abstract

The paper reports an experimental study on a promotion-demotion mechanism to mitigate the free-rider problem in team production. The "mechanism hierarchically splits a group in two; we refer to one subgroup as" the major league and to the other as the minor league. The most cooperative subject of the minor league is switched with the least cooperative subject in the major league. The results reveal a significant increase of cooperation levels relative to the standard voluntary contribution mechanism. We argue that competition arises and contributions increase because some subjects believe in a larger short-term continuation payoff from the major league than from the minor league. The data suggest that the promotion-demotion mechanism leads to a self-sorting of subjects according to their cooperativeness.

Suggested Citation

  • Tibor Neugebauer & Susana Cabrera & Enrique Fatas & Juan A. Lacomba, 2012. "Vertically Splitting a Firm: Promotion and Demotion in a Team Production Experiment," LSF Research Working Paper Series 12-3, Luxembourg School of Finance, University of Luxembourg.
    • Handle: RePEc:crf:wpaper:12-3
    as

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    File URL: http://wwwen.uni.lu/content/download/53127/634565/file/Vertically%20Splitting%20a%20Firm_Promotion%20and%20Demotion%20in%20a%20Team%20Production%20Experiment%20_2012%20(3).pdf
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    Citations

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    Cited by:

    1. Tibor Neugebauer & Maroš Servátka, 2010. "Does Competition Resolve the Free-Rider Problem in the Voluntary Provision of Impure Public Goods? Experimental Evidence," Working Papers in Economics 10/07, University of Canterbury, Department of Economics and Finance.
    2. Guido, Andrea & Robbett, Andrea & Romaniuc, Rustam, 2019. "Group formation and cooperation in social dilemmas: A survey and meta-analytic evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 159(C), pages 192-209.
    3. Gunnthorsdottir, Anna & Vragov, Roumen & seifert, Stefan & McCabe, Kevin, 2008. "on the efficiency of team-based meritocracies," MPRA Paper 8627, University Library of Munich, Germany.

    More about this item

    Keywords

    experiment; group incentives; organization design;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J4 - Labor and Demographic Economics - - Particular Labor Markets

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