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

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Date of creation: Jan 2008
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Publication status: forthcoming in: Journal of Labor Economics
Handle: RePEc:iza:izadps:dp3281

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

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45. [Downloadable!] (restricted)
  2. Rupert Sausgruber, 2005. "Testing for Team Spirit - An Experimental Study," Experimental 0508001, EconWPA. [Downloadable!]
  3. 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. [Downloadable!] (restricted)
  4. Ichino, Andrea & Maggi, Giovanni, 2000. "Work Environment And Individual Background: Explaining Regional Shirking Differentials In A Large Italian Firm," CEPR Discussion Papers 2387, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Christian Grund & Dirk Sliwka, 2005. "Envy and Compassion in Tournaments," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 14(1), pages 187-207, 03. [Downloadable!] (restricted)
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  6. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-17, August. [Downloadable!] (restricted)
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  7. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March. [Downloadable!] (restricted)
  8. Admati, Anat R & Perry, Motty, 1991. "Joint Projects without Commitment," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 259-76, April. [Downloadable!] (restricted)
  9. Fershtman, Chaim & Nitzan, Shmuel, 1991. "Dynamic voluntary provision of public goods," European Economic Review, Elsevier, vol. 35(5), pages 1057-1067, July. [Downloadable!] (restricted)
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