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Social norms and economic incentives in firms

  • Huck, Steffen
  • Kübler, Dorothea
  • Weibull, Jörgen

This paper studies the interplay between economic incentives and social norms in firms. We introduce a general framework to model social norms arguing that norms stem from agents’ desire for, or peer pressure towards, social efficiency. In a simple model of team production we examine the interplay of three types of contracts with social norms. We show that one and the same norm can be output-increasing, neutral, or output-decreasing depending on the contract. Multiplicity of equilibria and crowding out effects of steeper incentives can arise.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 83 (2012)
Issue (Month): 2 ()
Pages: 173-185

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Handle: RePEc:eee:jeborg:v:83:y:2012:i:2:p:173-185
DOI: 10.1016/j.jebo.2012.05.005
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  1. Pedro Rey-Biel, . "Inequity Aversion and Team Incentives," Working Papers 319, Barcelona Graduate School of Economics.
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  9. Kubler, Dorothea, 2001. "On the Regulation of Social Norms," Journal of Law, Economics and Organization, Oxford University Press, vol. 17(2), pages 449-76, October.
  10. J. B. Van Huyck & R. C. Battalio & R. O. Beil, 2010. "Tacit coordination games, strategic uncertainty, and coordination failure," Levine's Working Paper Archive 661465000000000393, David K. Levine.
  11. 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 234-54, April.
  12. Paul Fischer & Steven Huddart, 2008. "Optimal Contracting with Endogenous Social Norms," American Economic Review, American Economic Association, vol. 98(4), pages 1459-75, September.
  13. Assar Lindbeck & Sten Nyberg & Jörgen W. Weibull, 2003. "Social Norms and Welfare State Dynamics," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 533-542, 04/05.
  14. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
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  16. William E. Encinosa, III & Martin Gaynor & James B. Rebitzer, . "The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation Systems," GSIA Working Papers 49, Carnegie Mellon University, Tepper School of Business.
  17. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 917-962.
  18. Strausz, Roland, 1999. "Efficiency in Sequential Partnerships," Journal of Economic Theory, Elsevier, vol. 85(1), pages 140-156, March.
  19. Bartling, Björn, 2011. "Relative performance or team evaluation? Optimal contracts for other-regarding agents," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 183-193, August.
  20. Dufwenberg, Martin & Lundholm, Michael, 1997. "Social Norms and Moral Hazard," Working Paper Series 1997:28, Uppsala University, Department of Economics.
  21. Besley, T. & Coate, S., 1990. "Understanding Welfare Stigma: Taxpayer Resentment And Statistical Discrimination," Papers 42, Princeton, Woodrow Wilson School - Discussion Paper.
  22. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
  23. Knez, Marc & Simester, Duncan, 2001. "Firm-Wide Incentives and Mutual Monitoring at Continental Airlines," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 743-72, October.
  24. Vendrik, Maarten C. M., 2003. "Dynamics of a household norm in female labour supply," Journal of Economic Dynamics and Control, Elsevier, vol. 27(5), pages 823-841, March.
  25. Oliver Hart, 2001. "Norms and the Theory of the Firm," NBER Working Papers 8286, National Bureau of Economic Research, Inc.
  26. Lindbeck, Assar & Nyberg, Sten & Weibull, Jörgen W., 1997. "Social Norms and Economic Incentives in the Welfare State," Working Paper Series 476, Research Institute of Industrial Economics.
  27. George A. Akerlof, 1980. "A Theory of Social Custom, of which Unemployment may be One Consequence," The Quarterly Journal of Economics, Oxford University Press, vol. 94(4), pages 749-775.
  28. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
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