Equal Output Sharing in Teams with Heterogeneous Agents

Why do many teams share output equally, despite differences in their members’ productivity and contributions? The authors identify conditions on the production technology under which equal sharing is optimal despite heterogeneous costs and productivity. These conditions are satisfied by separable logarithmic-affine technologies and, for two-worker groups, by transformed bilinear technologies under specific cross-effect and curvature conditions. In organizations where output is separable into different groups’ contributions, equal sharing within each group is optimal when these conditions hold at the level of the group. Otherwise, equal sharing is typically not optimal. Their results are consistent with the high prevalence of equal sharing in partnership settings (e.g., law or medical partnerships) and in small teams (e.g., two-partner joint ventures), and with its lower prevalence in large teams that may involve non-separable production technologies (e.g., large manufacturing or innovation teams). In sum, equal sharing is often optimal in team production.