This paper shows how human resource management practices and input heterogeneity jointly trigger productivity spillovers at the workplace. In an egg production plant in rural Peru, workers produce output combining effort with inputs of heterogeneous quality. Exploiting quasi-random variation in the productivity of inputs assigned to workers, we find evidence of a negative causal effect of an increase in coworkers' daily output on own output and its quality. We show both theoretically and empirically that the effect captures free riding among workers, which originates from the way the management informs its decisions on whether and who to dismiss. Evidence also suggests that the provision of monetary and social incentives can offset negative productivity spillovers. Our study and results show that production and human resource management practices interact in the generation of externalities at the workplace. Counterfactual analyses suggest productivity gains from the implementation of alternative input assignment schedules and dismissal policies to be up to 20%.

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