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This paper contributes to the literature on how diversity impacts groups by exploring how communication mediates the ability of diverse individuals to work together. To do so we incorporate a communication channel into a representative model of problem-solving by teams of diverse agents that provides the foundations for one of the most widely cited analytical results in the literature on diversity and team performance: the “Diversity Trumps Ability Theorem”. We extend the model to account for the fact that communication between agents is a necessary feature of team problem-solving, and we introduce the possibility that this communication occurs with error, and that this error might sometimes be correlated with how different agents are from one another. Accounting for communication does not give us reason to reject the claim associated with the theorem, that functionally diverse teams tend to outperform more homogeneous teams (even when the homogeneous teams are comprised of individuals with more task relevant expertise). However, incorporating communication into our model clarifies the role that four factors play in moderating the extent to which teams capture the benefits of functional diversity: i) the complexity of the problem, ii) the number of available approaches to solving the problem, iii) the ways of encoding or conceptualizing a problem, and iv) institutional characteristics, such as how teams work together. Specifically, we find that whether (and to what extent) teams capture the benefits of functional diversity depends on how these four factors interact with one another. Particularly important is the role institutional dynamics (like search methods) play in moderating or amplifying interpersonal frictions (like miscommunication), and notably we find that institutions that work in one setting can be counterproductive in other settings.