Peer Pressure and Incentives
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.
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Volume (Year): 58 (2006)
Issue (Month): 1 (01)
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