Giving workers team-based incentives via monetary prize tournaments has different effects on productivity than via team rankings

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. This paper by Bandiera, Barankay and Rasul (Journal of the European Economic Association, October 2013) presents 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. The researchers interpret these results through a theoretical framework that specifies when the provision of team-based incentives crowds out the productivity-enhancing effect of social connections under team production.

By Oriana Bandiera, Iwan Barankay and Imran Rasul (2013)