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Peer effects and incentives

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  • Kräkel, Matthias

Abstract

In a multi-agent setting, individuals often compare own performance with that of their peers. These comparisons influence agents' incentives and lead to a noncooperative game, even if the agents have to complete independent tasks. I show that depending on the interplay of the peer effects, agents' efforts are either strategic complements or strategic substitutes, but the Informativeness Principle always applies. I solve for the optimal monetary incentives that complement the peer effects. In case of limited liability, the principal may prefer to implement inefficiently large efforts although agents earn positive rents that increase in the respective agent's effort level.

Suggested Citation

  • Kräkel, Matthias, 2016. "Peer effects and incentives," Games and Economic Behavior, Elsevier, vol. 97(C), pages 120-127.
    • Handle: RePEc:eee:gamebe:v:97:y:2016:i:c:p:120-127
    DOI: 10.1016/j.geb.2016.04.005
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    Cited by:

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    2. Julien Senn & Jan Schmitz & Christian Zehnder, 2023. "Leveraging social comparisons: the role of peer assignment policies," ECON - Working Papers 427, Department of Economics - University of Zurich, revised Aug 2023.
    3. Koch, Simon & Weinschenk, Philipp, 2021. "Contract design with socially attentive preferences," Games and Economic Behavior, Elsevier, vol. 130(C), pages 591-601.
    4. Weinschenk, Philipp, 2019. "Contract Design with Socially-Attentive Preferences," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203546, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    Externalities; Moral hazard; Other-regarding preferences;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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