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Peer Pressure and Incentives

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  • Kohei Daido

Abstract

We study the effects of peer pressure on incentives. To this end, we extend a multiagent model with moral hazard and limited liability by introducing a peer pressure function. We show that the optimal incentive for the less productive agent is more high powered than that for the more productive agent in the case with peer pressure. Moreover, in comparison with the case without peer pressure, the optimal incentive for the less productive agent becomes more high powered, while the optimal incentive for the more productive agent becomes less high powered. Copyright Blackwell Publishers Ltd and the Board of Trustees of the Bulletin of Economic Research, 2006.

Suggested Citation

  • Kohei Daido, 2006. "Peer Pressure and Incentives," Bulletin of Economic Research, Wiley Blackwell, vol. 58(1), pages 51-60, January.
  • Handle: RePEc:bla:buecrs:v:58:y:2006:i:1:p:51-60
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    Cited by:

    1. Cato, Susumu & Ebina, Takeshi, 2014. "Inequality aversion in long-term contracts," MPRA Paper 59893, University Library of Munich, Germany.
    2. Kohei Daido, 2009. "Incentives, Identity, and Organizational Forms," Discussion Paper Series 47, School of Economics, Kwansei Gakuin University, revised Jul 2009.
    3. Kohei Daido, 2006. "Incentive Effects of Peer Pressure in Organizations," Economics Bulletin, AccessEcon, vol. 10(14), pages 1-10.
    4. repec:ebl:ecbull:v:10:y:2006:i:14:p:1-10 is not listed on IDEAS

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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