Individual,Collective,and Systems Rationality in Work Groups

Abstract

In work teams, two situations often arise. In the first, one can observe only the output of the work group, not the contributions of each member. In the second, the output of each member depends not only on one's own effort but on the efforts of other workers. The problem that arises in both situations is how to construct reward schemes. Group piece-rate schemes are often suggested as a solution. However, these are susceptible to free rider problems. One classic and non-market-based solution relies on a supervisor who keeps free riders in line. Another solution to the free rider problem retains the market-type character of the piece rate scheme but the relationship between output and reward is highly nonlinear. This article discusses three alternative and non-market-based solutions to the free rider problem: social rewards, altruistic preferences, and moral commitments.