On the optimal management of teams under budget constraints

We study optimal wage schemes for teams, under the presence of budget constraints, in a model in which agents’ effort decisions are mapped into the probability of the team’s success. We show that (first-best) efficiency can only be attained with complex contracts that are vulnerable to ex post manipulations and off-equilibrium path violations of the budget constraints. Within the domain of simple (and budget-balanced) contracts, an interesting scheme, which treats equal members of the team unequally, emerges as optimal