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Transparency, Inequity Aversion, and the Dynamics of Peer Pressure in Teams: Theory and Evidence

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  • Alwine Mohnen
  • Kathrin Pokorny
  • Dirk Sliwka

Abstract

We provide an explanation for peer pressure in teams based on inequity aversion. Analyzing a two-period model with two agents, we find that the effect of inequity aversion strongly depends on the information structure. When contributions are unobservable, agents act as though they were purely selfish. However, when contributions are made transparent at an interim stage, agents exert higher efforts in the first period and adjust their efforts according to the interim information in the second period. This form of peer pressure reduces free riding, and thus more efficient outcomes are attained. The results are confirmed in a real effort experiment. (c) 2008 by The University of Chicago.

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Bibliographic Info

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

Volume (Year): 26 (2008)
Issue (Month): 4 (October)
Pages: 693-720

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Handle: RePEc:ucp:jlabec:v:26:y:2008:i:4:p:693-720

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  1. Rupert Sausgruber, 2005. "Testing for Team Spirit - An Experimental Study," Experimental 0508001, EconWPA.
  2. Steffen Huck & Pedro Rey-Biel, 2006. "Endogenous Leadership in Teams," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(2), pages 253-261, June.
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  6. Dominique Demougin & Claude Fluet, 2003. "Inequity Aversion in Tournament," CIRANO Working Papers 2003s-18, CIRANO.
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  9. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
  10. Grund, Christian & Sliwka, Dirk, 2002. "Envy and Compassion in Tournaments," IZA Discussion Papers 647, Institute for the Study of Labor (IZA).
  11. Admati, Anat R & Perry, Motty, 1991. "Joint Projects without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 259-76, April.
  12. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  13. David Masclet, 2002. "Peer Pressure in Work Teams : The effects of Inequity Aversion," Post-Print halshs-00178476, HAL.
  14. Fershtman, Chaim & Nitzan, Shmuel, 1991. "Dynamic voluntary provision of public goods," European Economic Review, Elsevier, vol. 35(5), pages 1057-1067, July.
  15. Uschi Backes-Gellner & Arndt Werner & Alwine Mohnen, 2004. "Team Size and Effort in Start-Up-Teams – Another Consequence of Free-Riding and Peer Pressure in Partnerships," Working Papers 0054, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Mar 2004.
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