Decision–Making and Implementation in Teams

We use a mechanism-design approach to study a team whose members choose a joint project and exert individual efforts to execute it. Members have private information about the qualities of alternative projects. Information sharing is obstructed by a trade-off between adaptation and motivation. We determine the conditions under which first-best project and effort choices are implementable and show that these conditions can become relaxed as the team grows in size. This contrasts with the common argument (based on free-riding) that efficiency is harder to achieve in larger teams. We also characterize the second-best mechanism and find that decision-making may be biased either in favor or against the team's initially preferred alternative.