We study a continuous-time organization design problem. Each member's output is an imperfect signal of his underlying effort, and each member's utility from remaining in the organization is endogenous to other members' efforts. Monetary transfers are assumed infeasible. Incentives can be provided only through two channels: expulsion following poor performance and respite following good performance. We derive the steady state distribution of members' continuation utilities for arbitrary values of the initial and maximum continuation utilities and then optimize these values according to organizational objectives. An optimally designed organization can be implemented by associating continuation utilities with a performance-tracking reputation system.
Jacobs, Joshua A., Aaron M. Kolb, and Curtis R. Taylor.
"Communities, Co-ops, and Clubs: Social Capital and Incentives in Large Collective Organizations."
American Economic Journal: Microeconomics,
Organizational Behavior; Transaction Costs; Property Rights
Asymmetric and Private Information; Mechanism Design
Economics of Contract: Theory
Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification