When Should the Talented Receive Weaker Incentives? Peer Pressure in Teams
We study optimal incentive contracts offered to teams where team members feel a social pressure to exert similar effort levels. The team consists of two groups of agents differing in their productivity. We characterize first best and the equilibrium under agency. Regarding economic incentives, the principal has to adjust the incentives away from the first-best incentives that would arise in the absence of peer pressure. In equilibrium less productive agents exert less effort and all agents experience peer pressure.
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Volume (Year): 62 (2006)
Issue (Month): 1 (March)
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- Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, Department of Economics, University of Bristol, UK.
- Encinosa III, William E. & Gaynor, Martin & Rebitzer, James B., 2005.
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- William E. Encinosa, III & Martin Gaynor & James B. Rebitzer, "undated". "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.
- William E. Encinosa III & Martin Gaynor & James B. Rebitzer, 1997. "The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation Systems," NBER Working Papers 5953, National Bureau of Economic Research, Inc.
- Bengt Holmstrom, 1982.
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- Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
- Daniel G. Hansen, 1997. "Worker Performance and Group Incentives: A Case Study," ILR Review, Cornell University, ILR School, vol. 51(1), pages 37-49, October.
- Kohei Daido, 2002. "The Effects of Peer Pressure and Risk Sharing on Incentives," Discussion Papers in Economics and Business 02-14-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Aug 2003.
- 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.
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