Paper 3 (Control in a teamwork environment: The Impact of social ties on the effectiveness of mutual monitoring contracts) - Theory and hypotheses - Hypotheses

4 important questions on Paper 3 (Control in a teamwork environment: The Impact of social ties on the effectiveness of mutual monitoring contracts) - Theory and hypotheses - Hypotheses

What is the indirect effect of cognitive change that defines team identity?

This results from the efforts of highly identified teams to actively coordinate their strategies. Coordination is enhanced by communication, thus highly identified teams will engage in greater communication, leading to an increased probability of arriving at cooperative outcomes.

What does cooperation mean under the vertical incentive system?

Under the vertical incentive system, pay is based on reported effort. There is a possibility for collusion between the two agents where they can each shirk and report the other worked. Thus under the vertical incentive system, agents who collude are likely to choose lower effort levels than those who choose their strategies independently.

What does cooperation mean under the horizontal incentive system?

In the horizontal incentive system pay is based on team output and offers no opportunities for collusion. The principal assumes that the agents will side contract to the principals advantage.
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Describe the endogeneity problem that can arise between the incentive system and level of team identity.

The horizontal system is geared towards team mentality and the vertical system eschews the cooperative spirit of a team. The type of incentive system is expected to affect the team members' feelings about one another and thus the level of team identity.

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