We study optimal team design. In our model, a principal assigns either heterogeneous agents to a team (a diverse team) or homogenous agents to a team (a specialized team) to perform repeated team production. We assume that specialized teams exhibit a productive substitutability (e.g.,...

We study a contract design problem between a principal and a team of two productively heterogenous agents who can mutually monitor each other’s actions over an infinite horizon. The principal designs the explicit contract to set the stage for the agents to use implicit contracts to motivate...