In the modern system development approach, engineers with diverse discipline form teams and work together in engineering projects. An example is a cross functional team in concurrent engineering. It is important to design incentive systems that maximize team achievements; however, there is a tradeoff between rewarding individual vs. team achievements. Rewarding solely on individual achievements may hinder the overall team achievements, while rewarding solely on team achievements may lead to the phenomenon called social loafing or free riding in which individuals tend to perform worse or contribute less in group. This paper studied the effects of competitive rewards based on individual and team’s achievements by conducting experiments using prisoner’s dilemma game (PDG) in which participants face tradeoff between working more or less in hypothetical individual and team assignments. The unique approach in this paper is to decompose the overall PDG payoff matrix into payoff matrix for individual achievements and that for team achievements to test the effects of individual and team competitive rewards. The experiment results suggested that introduction of team competitive rewards resulted in higher cooperation among team members and overall productivity, compared to when individual competitive rewards were introduced.

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