Abstract
Abstract We look at the tradeoff between competition and collaboration, and its implications for organization design – in the sense of structure, culture (or shared preferences) and monetary incentives. In our setting, collaboration is essential but costly for agents with different preferences. We consider two structures: an internally competitive (or parallel) structure where agents compete on quality for their projects to be selected by a principal, and an internally noncompetitive (or focussed) structure where the principal mandates a project. As preferences diverge, internal competition leads to higher quality projects, until the need to compromise to facilitate collaboration undoes these gains. As a result, internal competition is most beneficial for the organization for intermediate levels of heterogeneity in preferences.
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