Project selection and execution in teams

• Published date: 01 February 2016
• Author: Jordi Blanes i Vidal,Marc Möller
• DOI: http://doi.org/10.1111/1756-2171.12122
• Date: 01 February 2016

RAND Journal of Economics

Vol.47, No. 1, Spring 2016

pp. 166–185

Project selection and execution in teams

Jordi Blanes i Vidal∗

and

Marc M¨

oller∗∗

We use a mechanism-design approach to study a team whose members select a joint project and

exert individual efforts to execute it. Members have private information about the qualities of

alternative projects. Information sharing is obstructed by a trade-off between adaptation and

motivation. We determine the conditions under which first-best project and effort choices are

implementable and show that these conditions can become relaxed as the team grows in size. We

also characterize the second-best mechanism and find that it may include a “motivational bias,”

that is, a bias in favor of the team’s initially preferred project, and higher-than-optimal effort by

uninformed team members.

1. Introduction

This article examines joint decision making in teams where members exert individual

efforts to execute an agreed decision. Such situations are ubiquitous. For example, members

of government cabinets choose policy and then spend political capital ensuring its success. In

joint ventures, firms determine the characteristics of their common product and invest into its

development and marketing. Parentsag ree on an upbringing approach and then struggle to impose

it on their children. Within organizations, the prevalence of self-managed teams is reportedly

growing over time (Manz and Sims, 1993).

In the above examples, execution efforts are arguably noncontractible, and it is well known

that moral hazard leads to suboptimal effort choices. However, when team members have a

common interest in choosing the best project, one might think that they should be able to

share information efficiently and reach an optimal decision. Nevertheless, teams with largely

aligned incentives often fail to communicate valuable information and end up with suboptimal

decisions. A classic example of a cohesive team making wrong-headed decisions is the Kennedy

administration during the Bay of Pigs invasion. Its failure is commonly attributed to a lack of

communication, as several members of the administration claimed to have failed to express their

∗London School of Economics; j.blanes-i-vidal@lse.ac.uk.

∗∗University of Bern; marc.moeller@vwi.unibe.ch.

We thank Ricardo Alonso, Antonio Cabrales, Wouter Dessein, Luis Garicano, Thomas Kittsteiner, Kristof Madarasz,

Ignacio Palacios-Huerta, Joaquin PobleteLavanchy,David Rahman, Luis Rayo, Roland Strausz and participants at various

seminars and conferences for valuable discussions and suggestions.

166 C2016, The RAND Corporation.

BLANES I VIDAL AND M¨

OLLER / 167

opinion that the operation was flawed(Janis, 1982). Similar behavior has been documented using

firm (Perlow, 2003) and laboratory studies (Stasser and Titus, 1985; Gigone and Hastie, 1993).

In this article, we argue that less-than-full communication and biased decision making can be

rationalized as a team’s optimal institutional arrangement in settings where decisions must not

only be taken but also executed.

Our starting point is the observation that the desire to keep “morale” high at the execution

stage may hinder information sharing between the members of a team. Consider, for instance,

two coauthors choosing between two alternative scientific projects. Suppose that, ex ante, both

authors expect that project Ais more likely to be successful. Further suppose that one author

receives information, for example, feedback in a seminar, indicating that project Bis more likely

to be successful than Abut less likely than project Awas expected to be ex ante. In this situation,

the author faces a trade-off. By concealing the news and selecting project A, he can benefit from

his coauthor’s high level of motivation, based on the optimistic (but incorrect) prior expectations.

Instead, by sharing his information, the team can adapt to the news by adopting the ex post more

promising project B.

This trade-off between motivation and adaptation has long been recognized by scholars of

group decision making as critical to the understanding of why information that questions the

prevailing consensus frequently remains unshared (Perlow and Williams, 2003). It is often most

dramatic in military settings, where maintaining morale is key. For instance, President George

W. Bush admitted that, though privately aware throughout 2006 of the increasing likelihood of

failure in Iraq, he continued to produce upbeat public assessments, thereby easing public pressure

to correct his existing strategy,to avoid diminishing troops’ morale.1The view that a commitment

to an initially preferred alternative represents a threat to the frank exchange of information also

resonates with lessons from social psychology (Stasser, 1999), and political science (T’Hart,

1994), as well as with views expressed by practitioners.2

Building on the aboveexample, Section 2 presents a tractable model of team decision making

characterized by two main features: (i) project selection and project executionare complementary

and (ii) each team member (privately)obtains (with some probability) verifiable information about

the projects’ qualities. In the first-best benchmark, team members select the project with the

highest (expected) quality, conditional on their aggregate information, and exert efficient levels

of effort. We use a mechanism-design approach to examine the conditions under which the first

best is implementable and to determine the characteristics of the team’s optimal institutional

arrangement.3In our model, team members decide whether to disclose their evidence to a

mechanism that, based on the disclosed information, selects a project, recommends individual

effort levels, and specifies the team members’ outcome-contingent compensation.4We allow the

mechanism’s project selection and effort recommendation to be random and impose only limited

liability and budget balance.

The article provides two main results. First, we show that the first-best benchmark is

implementable if and only if the value of adaptation (i.e., the value of adapting the decision to the

state of the world) is sufficiently large in comparison to the valueof motivation (i.e., the value of

1Interview with Martha Raddat, ABC News on April 11, 2008, transcript available at abcnews.go.com/

Politics/story?id=4634219&page=1.

2Alfred P. Sloan once terminated a General Motors (GM) senior executive meeting with the following state-

ment: “Gentlemen, I take it we are all in complete agreement on the decision here. Then I propose we postpone

further discussion on this matter until our next meeting to give ourselves time to develop disagreement.” Taken from

www.economist.com/businessfinance/management/displaystory.cfm?story_id=13047099.

3An alternative approach wouldbe to assume a specific institutional ar rangement and to derivethe conditions under

which team members are willing to communicate their private information. We pursue this approach in Blanes i Vidal

and M¨

oller (2013) for a setting in which team members receive a constant share of revenue and project choice can be

delegated to a manager.

4In our setting of an autonomous team, the mechanism should be understood as a mechanical device or contract

rather than a third party. Forexamples, see our formal description of a mechanism in Section 2. The use of a mechanism

requires a certain degree of commitment. The effects of limiting this commitment are discussed in Section 7.

C

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