Team Incentives:Evidence from a Firm Level Experiment

Many organizations rely on teamwork, and yet field evidence on the impacts of team-basedincentives remains scarce. Compared to individual incentives, team incentives can affectproductivity by changing both workers’ effort and team composition. We present evidencefrom a field experiment designed to evaluate the impact of rank incentives and tournamentson the productivity and composition of teams. Strengthening incentives, either throughrankings or tournaments, makes workers more likely to form teams with others of similarability instead of with their friends. Introducing rank incentives however reduces averageproductivity by 14%, whereas introducing a tournament increases it by 24%. Both effects areheterogeneous: rank incentives only reduce the productivity of teams at the bottom of theproductivity distribution, and monetary prize tournaments only increase the productivity ofteams at the top. We interpret these results through a theoretical framework that makesprecise when the provision of team-based incentives crowds out the productivity enhancingeffect of social connections under team production....