1 TEAM PRODUCTION, RESIDUAL CLAIMANCY, AND INEQUALITY AVERSION

The collective action problem present in team production has been a widely discussed topic, both theoretically and empirically. Based on existing theory, it seems obvious that bosses should avoid the simplest form of team production in which the boss claims some share of the value generated and transfers the rest (in equal shares) to the team as compensation. Such a compensation scheme is undermined by the incentive of egoistic workers to shirk. However, in light of recent experimental evidence, it seems unreasonable to assume all workers are egoistic. What if they are inequality averse? I show that shirking in this environment is attenuated if workers account for the cost of their own efforts when assessing inequality and are sufficiently superiority averse. JEL Classification: C72, D01, J59