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Communities, Co-ops, and Clubs: Social Capital and Incentives in Large Collective Organizations†

Communities, Co-ops, and Clubs: Social Capital and Incentives in Large Collective Organizations† AbstractWe study a continuous-time organization design problem. Each member’s output is an imperfect signal of his underlying effort, and each member’s utility from remaining in the organization is endogenous to other members’ efforts. Monetary transfers are assumed infeasible. Incentives can be provided only through two channels: expulsion following poor performance and respite following good performance. We derive the steady state distribution of members’ continuation utilities for arbitrary values of the initial and maximum continuation utilities and then optimize these values according to organizational objectives. An optimally designed organization can be implemented by associating continuation utilities with a performance-tracking reputation system. (JEL Z13, D23, D86, P13, D82) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal Microeconomics American Economic Association

Communities, Co-ops, and Clubs: Social Capital and Incentives in Large Collective Organizations†

Communities, Co-ops, and Clubs: Social Capital and Incentives in Large Collective Organizations†

American Economic Journal: Microeconomics 2021, 13(3): 29–69 https://doi.org/10.1257/mic.20180359 Communities, Co-ops, and Clubs: Social Capital and Incentives in Large Collective Organizations By Joshua A. Jacobs, Aaron M. Kolb, and Curtis R. Taylor* We study a continuous-time organization design problem. Each mem- ber’s output is an imperfect signal of his underlying effort, and each member’s utility from remaining in the organization is endogenous to other members’ efforts. Monetary transfers are assumed infeasible. Incentives can be provided only through two channels: expulsion fol- lowing poor performance and respite following good performance. We derive the steady state distribution of members’ continuation util- ities for arbitrary values of the initial and maximum continuation utilities and then optimize these values according to organizational objectives. An optimally designed organization can be implemented by associating continuation utilities with a performance-tr acking reputation system. (JEL Z13, D23, D86, P13, D82) If the members of a large group rationally seek to maximize their personal welfare, they will not act to advance their common or group objectives unless there is coercion to force them to do so, or unless some separate incentive, distinct from the achievement of the common or group interest, is offered to the members of the group individually on the condition that they help bear the costs or burdens involved in the achievement of the group objectives. —Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (1971, 2) rganizations where members share access to a collectively produced com- mon good are ubiquitous: e.g., communities, co-ops, clubs, and teams. Such collecti ves are often egalitarian in the sense that output is shared more or less equally among members. This can occur for either technological reasons (when a team wins, all its members enjoy the...
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Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20180359
Publisher site
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Abstract

AbstractWe study a continuous-time organization design problem. Each member’s output is an imperfect signal of his underlying effort, and each member’s utility from remaining in the organization is endogenous to other members’ efforts. Monetary transfers are assumed infeasible. Incentives can be provided only through two channels: expulsion following poor performance and respite following good performance. We derive the steady state distribution of members’ continuation utilities for arbitrary values of the initial and maximum continuation utilities and then optimize these values according to organizational objectives. An optimally designed organization can be implemented by associating continuation utilities with a performance-tracking reputation system. (JEL Z13, D23, D86, P13, D82)

Journal

American Economic Journal MicroeconomicsAmerican Economic Association

Published: Aug 1, 2021

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