Formerly Graduate School of Industrial Administration (GSIA)
William Larimer Mellon, Founder
Schenley Park
Pittsburgh, Pennsylvania 15213-3890
United States of America

Pierre Jinghong Liang
Associate Professor of Accounting

Optimal Team Size and Monitoring in Organizations

Pierre Jinghong Liang
Carnegie Mellon University

Madhav V. Rajan
Stanford University

Korok Ray
University of Chicago
 

The Accounting Review
Vol. 83, No. 3, May 2008, page 789-822
 
Downloading the paper
2007-August Draft
 
Abstract:
We formulate and analyze a model of team structure and monitoring within a LEN agency framework. We incorporate three broad instruments in the internal design of an organization involving team production: team size, monitoring activities, and incentive contracts. We show that the complex trade-offs among these instruments lead to surprisingly simple implications. One such result is that the equilibrium level of pay-for-performance is attenuated, and is at times invariant to most environmental variables of interest. As such, our model helps explain the empirical puzzle of a lack of a tradeoff for risk/incentives in the standard agency model. Our work also demonstrates the presence of complementarities between team size and monitoring, and between worker talent and managerial monitoring ability. Finally, we derive predictions about the impact of environmental variables on the choice of optimal team size and incentives, even in the presence of an external marketplace for talent.
   
   
   
   

  English Version
Last updated May 27, 2008
send comments to liangj@andrew.cmu.edu 		Chinese Version
Last updated January 6, 2004
send comments to liangj@andrew.cmu.edu