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Effort provision in entrepreneurial teams: effects of team size, free-riding and peer pressure

Abstract

This paper analyzes whether effort provision in entrepreneurial teams depends on the size of the team, assuming that size determines the strength of free-riding and peer pressure effects in entrepreneurial teams. We provide a theoretical model and empirical analyses to explain the joint effect of free-riding and peer pressure on effort in start-up teams. We begin with an economic model by Kandel and Lazear in J Polit Econ 100(4):801–817, (1992) and enrich it using insights from entrepreneurship research. Based on our model, we first hypothesize that with increasing team size in entrepreneurial teams, the efforts of the individual team founders should follow an inverted U-shaped pattern. Second, we argue that the peer pressure effect is stronger if team members have stronger social ties, and thus we expect the effort-maximizing team size to be larger in teams with stronger social ties. Using a data set from 214 German start-up teams, we find that our hypotheses are supported by the data.

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Fig. 1

Notes

  1. 1.

    Thus, working in teams (of founders) creates particular problems and may result in a less-than-optimal use of additional resources if these problems cannot be resolved. Resources brought in by additional team members may not be fully or efficiently utilized and may therefore hinder the success of team startups.

  2. 2.

    In contrast, research also emphasizes that diverse teams are more effective because they better overcome cognitive conflicts (e.g., they allow team members to see multiple perspectives and avoid hazardous decisions).

  3. 3.

    In an established firm with already developed HR management, this monitoring technology would be a human resource tool, e.g., a feedback system including performance measures to control and incentivize employees’ effort level. In a start-up, such instruments are missing. However, we argue that founders monitor each other while working together, consciously or unconsciously.

  4. 4.

    The wording “internal and external peer pressure” (Kandel and Lazear 1992) means more or less the same as the terminus “team identification” in the sociological literature.

  5. 5.

    There are no complementarities assumed in our model. This approach is consistent with Adams (2002), who uses a similar production technology for medical and legal practices. In our case, this assumption appears to be reasonable because output for us is not sales or profits but rather effort (as measured by individual working time, which simply adds up to a total amount of working time).

  6. 6.

    Under our assumptions, these results have already been proven by Barua et al. (1995, p. 500), among others.

  7. 7.

    For the importance of close spatial proximity for the strength of peer pressure, see Zimmermann (2003).

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Acknowledgments

The data were collected with financial support from the German National Science Foundation (DFG) under project number STE 628/5-1, the German Founder Bank (Deutsche Ausgleichsbank, DtA) and the Cologne Savings Bank. We thank Petra Moog and Güldem Demirer for introducing us to their dataset.

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Correspondence to Uschi Backes-Gellner.

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Backes-Gellner, U., Werner, A. & Mohnen, A. Effort provision in entrepreneurial teams: effects of team size, free-riding and peer pressure. J Bus Econ 85, 205–230 (2015). https://doi.org/10.1007/s11573-014-0749-x

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Keywords

  • Peer pressure
  • Free-riding
  • Entrepreneurial teams
  • Team size

JEL Classification

  • M13
  • M59
  • L26