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The editor in charge of this paper was Stefano DellaVigna.
Acknowledgments: Financial support from the ESRC is gratefully acknowledged. We thank Philippe Aghion, Pierre Azoulay, George Baker, Roland Benabou, Peter Cappelli, Giacomo De Giorgi, Robert Gibbons, Christopher Ksoll, Claire Leaver, Thomas Lemieux, Bentley MacLeod, James Malcolmson, Joao Montalvao Machado, Muriel Niederle, Paul Oyer, Canice Prendergast, Daniel Rogger, Betsey Stevenson, Justin Wolfers, and seminar participants at Bergen, Columbia, Edinburgh, Erasmus, Harvard/MIT, IZA, LSE, Oxford, Sabanci, San Diego, Stanford, Wharton, the editor, and three anonymous referees for valuable suggestions. We thank all those involved in providing the data. This paper has been screened to ensure no confidential information is revealed. All errors remain our own.
Abstract
Many organizations rely on teamwork, and yet field evidence on the impacts of team-based incentives remains scarce. Compared to individual incentives, team incentives can affect productivity by changing both workers’ effort and team composition. We present evidence from a field experiment designed to evaluate the impact of rank incentives and tournaments on the productivity and composition of teams. Strengthening incentives, either through rankings or tournaments, makes workers more likely to form teams with others of similar ability instead of with their friends. Introducing rank incentives however reduces average productivity by 14%, whereas introducing a tournament increases it by 24%. Both effects are heterogeneous: rank incentives only reduce the productivity of teams at the bottom of the productivity distribution, and monetary prize tournaments only increase the productivity of teams at the top. We interpret these results through a theoretical framework that makes precise when the provision of team-based incentives crowds out the productivity-enhancing effect of social connections under team production.