In today's complex organizational landscape, fostering teamwork and collaboration is critical. However, inherent challenges such as tacit collusion—where individuals secretly coordinate against the firm's interests—can undermine performance. While much attention has been paid to promoting cooperation, there has been less attention given to designing teams that prevent collusion.
A new study by Jonathan Glover, the George O. May Professor of Financial Accounting at Columbia Business School, and Baruch College Professor Eunhee Kim, explores the role of demographic diversity in organizations. The researchers propose that by understanding and strategically managing this aspect of diversity, firms can encourage productive cooperation while effectively deterring collusive behaviors, leading to a more efficient workforce.
How the Research Was Done: Glover and Kim developed an economic model to analyze team dynamics within a firm. The model includes a principal who hires two agents, each making binary effort decisions (work or shirk). A key variable in their study is the agents' "types," which publicly characterized their discount factors—essentially, how patient or impatient they are. A more patient agent has a higher discount factor, while a less patient agent has a lower discount factor.
The research assumes the parties play a (infinitely) repeated game, where agents can observe each other's actions, allowing for the emergence of both cooperative and collusive behaviors. A core element of their methodology involves designing optimal contracts that encourage beneficial cooperation while simultaneously making it prohibitively costly for agents to engage in costly (to the principal) collusion. They explored various workforce compositions and extended their analysis to optimal team assignment.
What the Researchers Found: Glover and Kim found that for less patient agents, contracts are designed to foster cooperation. However, for more patient agents, contracts must not only foster cooperation but also actively prevent collusion. When collusion is a concern, the principal's optimal strategy is to target the less patient agent with higher-powered collusion-proof incentives, while providing the more patient agent with lower-powered cooperative incentives. This creates a disincentive for the more patient agent to bribe the less patient one into colluding, as the cost of the bribe to the briber outweighs the benefit to the bribee, effectively establishing a "bribe wedge."
If unconstrained, the optimal workforce involves one agent with the highest possible discount factor (a maximally patient agent) and another with a discount factor just low enough to allow for cooperative incentives without inviting collusion. This specific pairing maximizes the "bribe wedge," making it harder for collusion to take root. When extending the analysis to team assignments involving agents with fixed discount factors, the researchers found that diverse assignments (pairing one patient agent with one impatient agent) are optimal.
Why the Research Matters: This research holds significant implications for how organizations approach talent acquisition, team formation, and compensation strategies. The findings suggest that firms could see tangible benefits by actively considering patience in their hiring and team assignment processes. This isn't just about fairness or social responsibility; it's about optimizing organizational performance by mitigating the hidden costs of collusion. The "bribe wedge" concept provides a concrete mechanism through which diversity enhances efficiency.
Moreover, the study provides a robust theoretical foundation for designing asymmetric contracts that align individual incentives with overall organizational goals. In a world where teamwork is increasingly critical, understanding how to structure teams and incentives to prevent detrimental behaviors like collusion can lead to more robust, ethical, and ultimately, more productive workplaces. This research encourages leaders to view demographic diversity not just as a matter of compliance but also as a strategic asset in maintaining team integrity and maximizing economic outcomes.
Adapted from "Demographic Diversity and Collusion in Teams" by Jonathan Glover and Eunhee Kim, published in Management Science.
