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Incentive Effects of Peer Pressure in Organizations

Author

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  • Kohei Daido

    (School of Economics, Kwansei Gakuin University)

Abstract

This paper studies the effects of peer pressure on incentives. We assume that, in addition to the material payoff, each agent's utility includes the psychological payoff from peer pressure generated by a comparison of effort costs. We show that the optimal incentive schemes depend mainly on the degree of peer pressure and of the heterogeneity of agents. Furthermore, we examine the optimal organizational forms in terms of the principal''s intention to make use of the effects of peer pressure.

Suggested Citation

  • Kohei Daido, 2006. "Incentive Effects of Peer Pressure in Organizations," Economics Bulletin, AccessEcon, vol. 10(14), pages 1-10.
    • Handle: RePEc:ebl:ecbull:eb-06j30004
    as

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    References listed on IDEAS

    as
    1. Hideshi Itoh, 2004. "Moral Hazard and Other‐Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45, March.
    2. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 817-868.
    3. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-817, August.
    4. 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 234-254, April.
    5. Kohei Daido, 2006. "Peer Pressure and Incentives," Bulletin of Economic Research, Wiley Blackwell, vol. 58(1), pages 51-60, January.
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    Cited by:

    1. M.G. Lloyd, 2008. "Towards a ‘Pooled Sovereignty‘ in Community Planning in Scotland?," Local Economy, London South Bank University, vol. 23(1), pages 58-68, February.

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    More about this item

    Keywords

    Heterogeneity;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • M0 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General

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