In this paper, we consider a version of the Holmstr¨om-Milgrom linear model with two tasks, production and administration, where performance is harder to measure in the latter. Both the principal and agent can devote effort to these tasks. We assume there are gains from specialization and that...

We extend the classical teams framework to the case where team size is endogenous and workers can specialize within a division of labor. We consider two institutions: equal-division partnerships and the firm with a budget-breaker. In contrast with the previous literature, we show that effort and...

We develop a theory of incentives, wages, and employment in the context of team production. A central insight is that specialization and division of labor not only improve productivity but also increase eort and the sensitivity of eort to incentives under moral hazard. We show that incentives...