Hierarchy and Opportunism in Teams

We use experiments to compare two institutions for allocating the proceeds of team production.Under revenue-sharing, each team member receives an equal share of team output; under leader-determined shares, a team leader has the power to implement her own allocation.Both arrangements are vulnerable to opportunistic incentives: under revenuesharing team members have an incentive to free-ride, while under leader-determined shares leaders have an incentive to seize team output.We find that most leaders forego the temptation to appropriate team output and manage to curtail free-riding.As a result, compared to revenue-sharing, the presence of a team leader results in a significant improvement in team performance.