This paper analyzes the problem of inducing the members of an organization to behave
as if they formed a team. Considered is a conglomerate-type organization consisting
of a set of semi-autonomous subunits that are coordinated by the organization's head.
The head's incentive problem is to choose a set of employee compensation rules that
will induce his subunit managers to communicate accurate information and take optimal
decisions. The main result exhibits a particular set of compensation rules, an optimal
incentive structure, that leads to team behavior. Particular attention is directed
to the informational aspects of the problem. An extended example of a resource allocation
model is discussed and the optimal incentive structure is interpreted in terms of
prices charged by the head for resources allocated to the subunits.