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Peer Pressure in an Agency Relationship

  • Barron, John M
  • Gjerde, Kathy Paulson

The authors investigate the role of peer pressure in influencing the optimal incentive scheme offered to workers engaged in team production. They develop an agency model of peer policing to identify factors that affect the extent of mutual monitoring. As the principal must compensate workers for their monitoring efforts and the costs that peer pressure imposes on workers, introducing peer pressure alters the optimal compensation package. The authors establish conditions under which the principal reduces the marginal compensation rule to reduce monitoring efforts. As such, peer pressure provides a rationale for a reduced link between compensation and output in a team setting. Copyright 1997 by University of Chicago Press.

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File URL: http://dx.doi.org/10.1086/209832
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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 15 (1997)
Issue (Month): 2 (April)
Pages: 234-54

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Handle: RePEc:ucp:jlabec:v:15:y:1997:i:2:p:234-54
Contact details of provider: Web page: http://www.journals.uchicago.edu/JOLE/

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