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. JEL: C7, D7, D8, L2.