Jianpei Li

Efficient Tournaments within Teams

We analyze incentive problems in team and partnership structures where the only available information to condition a contract on is a partial and noisy ranking which specifies who comes first in efforts among the competing partners. This enables us to ensure both first-best efficient effort levels for all partners and the redistribution of output only among partners. Our efficiency result is obtained for a wide range of cost and production functions. Copyright (c) 2009, RAND.

Split-Award Contracts with Investment

This paper studies procurement contracts where a buyer can either divide full production among multiple suppliers or award the entire production to a single supplier. We examine the effect of using multiple suppliers on investment incentives. In a framework of generalized second-price auctions with pre-auction investment, we show that the optimality of split-award depends on the socially efficient number of firms at the investment stage. When that number is greater than one, sole-sourcing is buyer-optimal. When that number is one, split-award lowers the buyer procurement cost.

How to share it out: The value of information in teams ☆

We study the role of information exchange, leadership, and coordination in team and partnership structures. For this purpose, we view individuals jointly engaging in productive processes—a “team”—as endowed with individual and privately held information on the joint production process. Once each team member decides on whether or not to share his private information truthfully, he chooses which effort to exert in the joint production process. This effort, however, is not contractible: only the realized output (or profit) of the team can be observed. Our central question is whether or not incentives can be provided to a team in this environment such that team members communicate their private information and exert efficient productive efforts on the basis of this communication. Our main result shows that there exists a simple ranking-based contract that implements both desiderata in a wide set of situations.

Three essays on efficiency and incentives in teams and partnerships

Classic economic theory claims that teams and partnerships are inflicted with free– riding incentives and are inferior to capitalist firms in eliciting proper actions from players. This contradicts the popularity of teams and partnerships as organization forms. By accounting for several factors that may significantly affect effort provision (investment) but have been generally neglected in the literature: 1) tournament effect within teams; 2) other–regarding preferences; 3) possible dissolution of a partnership, this dissertation shows that teams and partnerships are not handicapped organization forms. Whether efficient efforts provision (investment) is achieved or not depends critically on the mechanisms employed in the allocation of team output and dissolution of a partnership. If some noisy ranking of efforts is observable and contractible, efficient provision of efforts can always be achieved in symmetric equilibrium by using rank–order tournaments to allocate the team output. If the players are subjected to limited liability, achievement of efficiency requires sufficient accuracy of the ranking technology. If the players show other–regarding preferences, efficient provision of efforts can be achieved through a randomly punishing contract. If the partnership faces possible dissolution, efficient investment and dissolution can be achieved through an option contract. However, the most widely used and recommended dissolution rule “buy–sell provision” fails to achieve efficiency as it leads to either excessive investment combined with efficient dissolution or underinvestment combined with excessive dissolution.