Internal incentive mechanisms in small teams with union-firm wage bargaining

I study firms that consist of small teams where individual workers’ contributions to output are observable only within each team, team members interact continuously over time and each team bargains with the firm over the net value of output. I assume that trigger strategies are used within teams to support more efficient outcomes than the noncooperative one. The wage bargaining solution is shown to imply a wage share between 1⁄2 and unity of output, depending on relative bargaining powers, and is more efficient (gives better worker effort incentives) when the wage share is higher as effort incentives are better. The best achievable solution is shown to be less efficient when team size is larger, teams have shorter duration, and with greater turnover of team leader and other team personnel. This implies tradeoffs between team turnover and scale economies from larger team size on one hand, and team member incentives on the other.