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The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation Systems

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Author Info
William E. Encinosa III
Martin Gaynor
James B. Rebitzer

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Abstract

This paper incorporates the sociological concept of group norms' into an economic analysis of pay systems. We use a behavioral microeconomic model and a unique survey of medical groups to examine the theoretical and empirical relationship between group norms and incentive pay. Our findings suggest that, at least for medical groups, norms are binding constraints in the choice of pay practices. While group norms matter, the patterns in the data suggest that they are not all that matters. Analysis of the preferences and activities of individual physicians indicate that factors highlighted by the economic theory of agency, notably income insurance and multi-task considerations, also shape pay policies. The conclusion we draw from these results is that the sociological concept of group norms augments rather than replaces more conventional economic analyses of pay practices.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5953.

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Date of creation: Mar 1997
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Handle: RePEc:nbr:nberwo:5953

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I1 - Health, Education, and Welfare - - Health
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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    Other versions:
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Full references

Cited by:
(explanations, 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. David J. Cooper & James B. Rebitzer, 2002. "Managed Care, Physician Incentives, and Norms of Medical Practice: Racing to the Bottom or Pulling to the Top?," Economics Working Paper Archive 353, Levy Economics Institute, The. [Downloadable!]
  2. 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. [Downloadable!] (restricted)
    Other versions:
  3. Michelle Brown & John Heywood, 2009. "Helpless in Finance: The Cost of Helping Effort Among Bank Employees," Journal of Economic Interaction and Coordination, Springer, vol. 30(2), pages 176-195, June. [Downloadable!] (restricted)
    Other versions:
  4. Agell, Jonas & Bennmarker, Helge, 2003. "Endogenous Wage Rigidity," Research Papers in Economics 2003:10, Stockholm University, Department of Economics. [Downloadable!]
  5. Randall D. Cebul & James B. Rebitzer & Lowell J. Taylor & Mark Votruba, 2008. "Organizational Fragmentation and Care Quality in the U.S. Health Care System," NBER Working Papers 14212, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Debashis Pal & Arup Bose & David Sappington, 2008. "Equal Pay for Unequal Work: Limiting Sabotage in Teams," University of Cincinnati, Economics Working Papers Series 2008-07, University of Cincinnati, Department of Economics. [Downloadable!]
  7. Michael Kuhn, . "Delegating Budgets when Agents Care About Autonomy," Discussion Papers 04/10, Department of Economics, University of York. [Downloadable!]
    Other versions:
  8. Armin Falk & Andrea Ichino, 2003. "Clean Evidence on Peer Pressure," Natural Field Experiments 0046, The Field Experiments Website. [Downloadable!]
    Other versions:
  9. David Nash, 2003. "Determinants of the use of financial incentives in investment banking," ESRC Centre for Business Research - Working Papers wp256, ESRC Centre for Business Research. [Downloadable!]
  10. David J. Cooper & James B. Rebitzer, 2002. "Managed Care, Physician Incentives, and Norms of Medical," Microeconomics 0209001, EconWPA. [Downloadable!]
  11. Jonas Agell & Helge Bennmarker, 2003. "Endogenous Wage Rigidity," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  12. Jonas Agell, 2003. "Why are Small Firms Different? Managers' Views," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  13. 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!]
  14. William E. Encinosa III & Martin Gaynor & James B. Rebitzer, 2005. "The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation Systems," IZA Discussion Papers 1851, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  15. Agell, Jonas, 2003. "Why are Small Firms Different? Managers' Views," Research Papers in Economics 2003:9, Stockholm University, Department of Economics. [Downloadable!]
  16. Mary A. Burke & Kislaya Prasad, 2005. "Contracts with social multipliers," Working Papers 05-17, Federal Reserve Bank of Boston. [Downloadable!]
  17. James B. Rebitzer, 1999. "Job characteristics, wages, and the employment contract - commentary," Review, Federal Reserve Bank of St. Louis, issue May, pages 29-34. [Downloadable!]
  18. Michael Kosfeld & Ferdinand von Siemens, 2007. "Competition, Cooperation, and Corporate Culture," IZA Discussion Papers 2927, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  19. Simon Burgess & Carol Propper & Marisa Ratto & Stephanie von Hinke Kessler Scholder & Emma Tominey, 2009. "Smarter Task Assignment or Greater Effort: the impact of incentives on team performance," The Centre for Market and Public Organisation 09/215, Department of Economics, University of Bristol, UK. [Downloadable!]
  20. Bartling, Björn & Siemens, Ferdinand von, 2007. "Equal Sharing Rules in Partnerships," Discussion Papers in Economics 2027, University of Munich, Department of Economics. [Downloadable!]
  21. Daniel S. Nagin & James B. Rebitzer & Seth Sanders & Lowell J. Taylor, 2002. "Monitoring, Motivation, and Management: The Determinants of Opportunistic Behavior in a Field Experiment," American Economic Review, American Economic Association, vol. 92(4), pages 850-873, September. [Downloadable!]
    Other versions:
  22. Claude Meidinger & Jean-Louis Rullière & Marie-Claire Villeval, 2003. "Does Team-Based Compensation Give Rise to Problems When Agents Vary in Their Ability?," Experimental Economics, Springer, vol. 6(3), pages 253-272, November. [Downloadable!] (restricted)
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