Optimal Workgroup Design: a Team of Confederates or The Hierarchy of Power?

People often encounter situations when some decision or choice has to be made not individually, but within a team. The ways that the decision is made can vary over different collectives or firms. This paper studies the effects of two different ways of team organization. First is maintaining team where all agents have equal bargaining power in decision-making process while the second is delegation of authority by principal to one of the agent empowering him with ability to have the final word in the decision-making. We find that optimal choice is delegation to one of the agents given that his relative ability level is high enough. Moreover, the conflict of interests between agents increases the likelihood of delegation to more able worker as on optimal choice of principal. We also study the effect of information asymmetry with agents having imperfect knowledge of own and each other's abilities on the optimal way of team organization. We show that in such case delegation create a strong signal to agents about their abilities as well as directly changing their authority. We found out that under asymmetry of information principal is less likely to delegate authority to one of the agents.