Individual Incentives within Team Competitions

This paper develops a theoretical model to show the effects of simultaneously having both a competition between groups and one among the individuals of a tournament. The players are divided up among teams and compete for a flat bonus for winning the team competition. At the same time, their efforts also determine if they will win another flat bonus from winning the individual game among all the tournament’s players. With the use of a specific team production function demonstrating substitution among the player’s efforts, the individual award seems to garner more overall group output than the group award. Under a specific production function demonstrating complementary efforts, players seem to be indifferent between the group and individual award. Lastly, a general production function that incorporates a variable measuring the degree of substitution was analyzed. The analysis showed that an individual award was beneficial to increasing overall team effort. The results imply that the payment scheme should be structured in a way that allocates larger individual rewards when the team efforts are more substitutable.