The Role of Competition in Controlling Team Production: The Case of Fishing Firms

Fishing firms all over the world and through history use an unusual compensation structure, known as “sharing system”. Under this system teams of workers share the costs and revenues of their boats. The paper argues that this pattern is efficient because team members compete intensely to enter the most productive teams. In the case of fishing this competition is possible because both the cost of switching teams and the cost of measuring the net output of a team are relatively low. The analysis shows the importance of these factors for designing team incentives within firms. It also indirectly reveals under which circumstances the conventional solution, linking compensation to individual performance, is relatively superior. Finally, empirical evidence suggests that risk sharing plays no role in explaining the sharing system. Key words: Theory of the Firm, Team Production, Share Contracts, Profit Sharing, Remuneration Systems, Self-Enforcement, Fishing Firms.