Effective Leadership Selection in Complementary Teams

This paper considers effective leadership selection in a simple two-person team production model with heterogeneous agents. We demonstrate leadership success through synergy by showing that the existence of synergy makes effort complementary, implying that the leader devote more effort than the follower and that a team with a leader yields greater production than a team without a leader. We also show that, to elicit greater team production, a principal should appoint the agent with higher (lower) opportunity cost as the leader (follower). Even if the agents' opportunity costs are unobservable to the principal, the principal can select a better leader by proposing a larger position allowance for the leader. The results may explain why many organizations indeed favor leadership styles and why real-world leaders receive higher compensation than followers