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Peer Pressure in an Agency Relationship

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Author Info
Barron, John M
Gjerde, Kathy Paulson

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Abstract

The authors investigate the role of peer pressure in influencing the optimal incentive scheme offered to workers engaged in team production. They develop an agency model of peer policing to identify factors that affect the extent of mutual monitoring. As the principal must compensate workers for their monitoring efforts and the costs that peer pressure imposes on workers, introducing peer pressure alters the optimal compensation package. The authors establish conditions under which the principal reduces the marginal compensation rule to reduce monitoring efforts. As such, peer pressure provides a rationale for a reduced link between compensation and output in a team setting. Copyright 1997 by University of Chicago Press.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 15 (1997)
Issue (Month): 2 (April)
Pages: 234-54
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Handle: RePEc:ucp:jlabec:v:15:y:1997:i:2:p:234-54

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  3. Azar, Ofer H., 2003. "The Effect of External Incentives on Profits and Firm-Provided Incentives Strategy," MPRA Paper 4456, University Library of Munich, Germany, revised 2007. [Downloadable!]
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  4. Huck, Steffen & Kübler, Dorothea & Weibull, Jörgen, 2001. "Social norms and optimal incentives in firms," Working Paper Series in Economics and Finance 466, Stockholm School of Economics. [Downloadable!]
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  5. Rupert Sausgruber, 2005. "Testing for Team Spirit - An Experimental Study," Experimental 0508001, EconWPA. [Downloadable!]
  6. Ekaterina Goldfayn, 2006. "Organization of R&D With Two Agents and Principal," Bonn Econ Discussion Papers bgse3_2006, University of Bonn, Germany. [Downloadable!]
  7. John S Heywood & Colin Green, 2008. "Profit Sharing and the Quality of Relations with the Boss," Working Papers 005698, Lancaster University Management School, Economics Department. [Downloadable!]
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  10. Meijerink, Gerdien, 2007. "If services aren't delivered, people won't pay: the role of measurement problems and monitoring in Payments for Environmental Services," 106th Seminar, October 25-27, 2007, Montpellier, France 7948, European Association of Agricultural Economists. [Downloadable!]
  11. Joshua Herries & Daniel I. Rees & Jeffrey S. Zax, 2003. "Interdependence in worker productivity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(5), pages 585-604. [Downloadable!]
  12. David Masclet, 2003. "L'analyse de l'influence de la pression des pairs dans les équipes de travail," CIRANO Working Papers 2003s-35, CIRANO. [Downloadable!]
  13. David Masclet, 2002. "Peer Pressure in Work Teams : The effects of Inequity Aversion," Post-Print halshs-00178476_v1, HAL. [Downloadable!]
  14. Pablo González, 2002. "Profit Sharing Reconsidered: Efficiency Wages and Renegotiation Costs," Documentos de Trabajo 151, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
  15. Kohei Daido, 2006. "Incentive Effects of Peer Pressure in Organizations," Economics Bulletin, Economics Bulletin, vol. 10(14), pages 1-10. [Downloadable!]
  16. Burkhard Hehenkamp & Oddvar Kaarbøe, 2004. "When the Talented Should Receive Weaker Incentives: Peer Pressure in Teams," Discussion Papers in Economics 04_02, University of Dortmund, Department of Economics. [Downloadable!]
  17. Kohei Daido, 2004. "Risk-averse agents with peer pressure," Applied Economics Letters, Taylor and Francis Journals, vol. 11(6), pages 383-386, May. [Downloadable!] (restricted)
  18. Rupert Sausgruber, 2009. "A note on peer effects between teams," Experimental Economics, Springer, vol. 12(2), pages 193-201, June. [Downloadable!] (restricted)
  19. Staffiero, Gianandrea, 2006. "Peer pressure and inequity aversion in the Japanese firm," IESE Research Papers D/645, IESE Business School. [Downloadable!]
  20. Mohnen, Alwine & Pokorny, Kathrin & Sliwka, Dirk, 2008. "Transparency, Inequity Aversion, and the Dynamics of Peer Pressure in Teams: Theory and Evidence," IZA Discussion Papers 3281, Institute for the Study of Labor (IZA). [Downloadable!]
  21. Craig A. Depken, II & Lisa E. Haglund, 2007. "Peer Effects in Team Sports: Empirical Evidence from NCAA Relay Teams," Working Papers 0729, International Association of Sports Economists. [Downloadable!]
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