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Dogan, Mustafa 
ORCID: https://orcid.org/0000-0001-9313-8911 and Yildirim, Pinar
(2022)
Managing automation in teams.
Journal of Economics & Management Strategy, 31 (1).
pp. 146-170.
ISSN 1058-6407
Abstract
In this paper, we study a principal's decision to introduce automation into a production process governed by a team of employees. When introduced, automation displaces an employee with a machine. This displacement increases efficiency as the machine carries out the tasks of the employee at a lower cost, and reduces the scope of moral hazard as the machine does not make unobserved effort choices. We show that, despite the direct benefits, a principal may prefer not to adopt automation due to its indirect costs. Before automation is introduced, the principal is able to take advantage of her ability to shape the interactions between the team members to manage the agency problem. Automation eliminates this ability and removes an incentive device at the principal's discretion, resulting in an indirect cost. On the one hand, adopting automation is always optimal when the principal incentivizes employees independently, abstaining from creating a team interaction. On the other hand, automation may be suboptimal when the principal incentivizes employees by encouraging them to compete via a “relative performance evaluation” contract or to cooperate via a “joint performance evaluation” contract. We offer two extensions to test the robustness of these findings qualitatively. First, the findings carry through if we consider alternative effects of automation, where it impacts employees symmetrically without displacing any employee. Second, the findings also remain consistent when there are synergies between the efforts of team members.
| Item Type: | Article |
|---|---|
| Additional Information: | Funding Information: This study was generously funded by the Wharton Dean's Research Fund and the Mack Institute of the University of Pennsylvania. A previous version of this paper was circulated under the title “Man versus Machine: When is automation inferior to human labor?” We thank the editor, the coeditor, and the anonymous referees for their valuable feedback. We also thank Chris Dellarocas, Anthony Dukes, Avi Goldfarb, Hanna Halaburda, Lorin Hitt, George Mailath, Steven Matthews, Mallesh Pai, Jiwoong Shin, K. Sudhir, Christophe Van den Bulte, Senthil Veeraraghavan, and John Zhang for their valuable feedback. Publisher Copyright: © 2021 Wiley Periodicals LLC |
| Faculty \ School: | Faculty of Social Sciences > School of Economics |
| UEA Research Groups: | Faculty of Social Sciences > Research Groups > Economic Theory |
| Related URLs: | |
| Depositing User: | LivePure Connector |
| Date Deposited: | 03 Dec 2024 01:35 |
| Last Modified: | 09 Dec 2024 01:38 |
| URI: | https://ueaeprints.uea.ac.uk/id/eprint/97848 |
| DOI: | 10.1111/jems.12456 |
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