Individual, Collective, and Systems Rationality in Work Groups: Dilemmas and Market-Type Solutions

In work teams two situations often arise: first, one can observe only the output of the work group, not the contributions of each member; second, the output of each member depends not only on herown effort but also on those of co-workers as well. The problem that arises is how to construct reward schemes. Group piece-rate schemes are often suggested as a solution. However, these are susceptible to free-rider problems. A classical solution relies on a supervisor who keeps free riders in line. This article duscusses another solution where the relationship between output and reward is highly nonlinear.