Worker collusion and organization design : effects of interpersonal interaction

Abstract

This paper examines hidden action models of the relationship between a firm and multiple workers, and identifies cases where the firm prefers workers to collude via a binding agreement on their action choice. Worker collusion and appropriately redesigned wage contracts have a risk sharing advantage (i) when workers' action choice is completely independent; (ii) when the firm wants each worker to allocate his effort efficiently among various productive activities; or (iii) when team production exists. Worker collusion also achieves an efficient level of "socialization" among workers while noncooperative behavior leads to "under -socialization."