Abstract
We study optimal workforce and contract design for a firm that employs a team of two agents. The agents have possibly diverse demographic characteristics captured by their discount factors. We also study optimal team design for four agents with given discount factors—two with low discount factors and two with high discount factors—who are to be assigned to two teams and identify conditions under which diverse assignment is optimal.
In preventing collusion, the principal optimally targets the less patient agent by offering him higher-powered incentives, while the more patient agent is offered lower-powered incentives to promote cooperation. Offering high-powered incentives to the less patient agent, who is also less susceptible to collusion, makes it costlier for the more patient agent to bribe the less patient agent into colluding.