Efficiency and Sustainability in Teamwork: The Role of Entry Costs

• Main Authors: Carlos E. Jijena Michel, Javier Perote, José D. Vicente-Lorente
• Format: Article
• Language: English
• Published: MDPI AG 2018-07-01
• Series: Sustainability
• Subjects: teamwork; up-front pay; minimum effort coordination game; efficiency
• Online Access: http://www.mdpi.com/2071-1050/10/7/2334

This research studies how incentives to cooperation and sustainability through up-front pay mechanisms can impact teamwork. For this purpose, we carry out certain laboratory experiments on the two-player Minimum Effort Game. First, we compare two treatments: one with “free play teams”, against teams forced to make a non-refundable up-front payment that covers the total output in case of maximum contribution, which we call “optimal entry cost teams”. In the second comparison, experimental results are focused on different amounts in the up-front pay in order to test the theoretical prediction that higher entry costs might improve efficiency (optimal entry cost treatment vs. medium entry cost treatment). We find that the up-front pay mechanism induces higher effort levels compared to the “free play teams”, which converge to the efficient and sustainable solution. The increase in the up-front pay, however, does not seem to accelerate such a convergence. These findings provide evidence for a new mechanism to encourage efficiency and sustainability in firms.