The advantage of hierarchy: Inducing responsibility and selecting ability?

We theoretically and experimentally investigate team production with and without a leading member of the team (called allocator) who has discretion over the input of all team members including herself. In a further extension of the allocator game, a superior (called principal) is introduced who is interested in high production and who can exchange the allocator. Team production and remuneration are modeled as a linear public good game with a finite number of periods. The main results are that (a) the appointment of a random allocator improves production so that average incomes of all workers, including the allocator, are higher when compared with voluntary contributions, (b) the introduction of a principal further improves production as well as satisfaction and fairness ratings. (a) and (b) describe the advantage of a tiered hierarchy. We provide a formal model of hierarchical decisions as well as derive and test various behavioral hypotheses.

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