Ability dispersion and team performance: a field experiment

This paper studies the impact of diversity in cognitive ability among members of a team on their
performance. We conduct a large field experiment in which teams start up and manage real
companies under identical circumstances. Exogenous variation in - otherwise random - team
composition is imposed by assigning individuals to teams based on their measured cognitive
abilities. The setting is one of business management practices in the longer run where tasks
are diverse and involve complex decision-making. We propose a model in which greater ability
dispersion generates greater knowledge for a team, but also increases the costs of monitoring
necessitated by moral hazard. Consistent with the predictions of our model, we find that team
performance as measured in terms of sales, profits and profits per share first increases, and
then decreases, with ability dispersion. Teams with a moderate degree of ability dispersion also
experience fewer dismissals due to fewer shirking members in those teams.