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

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Author Info

  • Mohnen, Alwine

    ()
    (Munich University of Technology)

  • Pokorny, Kathrin

    ()
    (University of Cologne)

  • Sliwka, Dirk

    ()
    (University of Cologne)

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 if 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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3281.

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Length: 39 pages
Date of creation: Jan 2008
Date of revision:
Publication status: published in: Journal of Labor Economics, 26 (4), 2008, 693 - 720
Handle: RePEc:iza:izadps:dp3281

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Keywords: real effort; team; transparency; peer pressure; free-riding; incentives; inequity aversion; experiment;

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  1. Andrea Ichino & Giovanni Maggi, 1999. "Work Environment and Individual Background: Explaining Regional Shirking Differentials in a Large Italian Firm," NBER Working Papers 7415, National Bureau of Economic Research, Inc.
  2. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
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  4. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  5. David Masclet, 2002. "Peer Pressure in Work Teams : The effects of Inequity Aversion," Post-Print halshs-00178476, HAL.
  6. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
  7. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  8. Pedro Rey Biel & Steffen Huck, 2005. "Endogenous Leadership in Teams," Microeconomics 0506004, EconWPA.
  9. Christian Grund & Dirk Sliwka, 2002. "Envy and Compassion in Tournaments," Bonn Econ Discussion Papers bgse32_2002, University of Bonn, Germany.
  10. Dominique Demougin & Claude Fluet, 2003. "Inequity Aversion in Tournament," CIRANO Working Papers 2003s-18, CIRANO.
  11. Englmaier, Florian & Achim Wambach, 2003. "Contracts and Inequity Aversion," Royal Economic Society Annual Conference 2003 74, Royal Economic Society.
  12. Admati, Anat R & Perry, Motty, 1991. "Joint Projects without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 259-76, April.
  13. Fershtman, C. & Nitzan, S., 1988. "Dynamic Voluntary Provision Of Public Goods," Papers 21-88, Tel Aviv.
  14. 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.
  15. Barron, John M & Gjerde, Kathy Paulson, 1997. "Peer Pressure in an Agency Relationship," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 234-54, April.
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