Optimal Sorting in Team Tournaments

This paper investigates the optimal formation of teams in a tournament. A manager sorts four workers---who differ in their productivity---into two teams. Workers on each team join forces to produce team output, and one team wins a prize; e.g., a bonus package. Two sorting patterns are possible: Positive sorting requires that each team consist of players of same caliber, while negative sorting does the opposite. We characterize the optimum with respect to relevant environmental factors, ranging from the degree of effort complementarity in the team production process and the curvature of effort cost functions to the degree of worker heterogeneity. We further extend the model to allow the manager to set a prize schedule for the workers on each team upon a win and allocate productive resources between teams