On Broadway and sports: how to make a winning team
A successful organization – or Broadway production – needs the right team. A potential issue is that incumbent workers in a team might have a lower marginal return of effort, reducing the incentive for them to invest relative to newcomers. While agents always prefer to be teamed with others they have worked with before, a principal may wish to use new team members; this occurs when the loss from lower investment is sufficiently large. In fact, a principal may select a team of newcomers even when incumbents produce greater surplus. These insights have implications for job rotation, centralization-versus-decentralization and mergers.
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