Cooperation in Organization through Self-Commitment Actions

This paper studies how an organization might promote cooperation between its members when individual contributions to the organization's output are imperfectly observable. It considers an overlapping-generation game in which members with conflicting interests expend effort in pursuing outside tasks that are perfectly observable and privately beneficial in addition to the effort devoted to increasing the organization's output. We show that both the organization's expected output and members' well-being increase when the reward and punishment mechanism links the two types of effort. In the resulting equilibrium, privately beneficial efforts are at an inefficient level in order to signal members' willingness to cooperate. After extending the game to multiple generations, we apply it to the optimal tasks assignment along career paths in an organization.