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Peer Pressure and Moral Hazard in Teams: Experimental Evidence

  • Brice Corgnet


    (Argyros School of Business and Economics, Chapman University)

  • Roberto Hernán González

    (Universidad de Granada)

  • Stephen Rassenti

    (Economic Science Institute, Chapman University)

Holmström (1982) established that free riding behaviors are pervasive whenever people are paid according to aggregate measures of output such as team incentives. However, team incentives have been found to be particularly effective both in the lab and in the field. In this paper we show, in line with Holmström (1982), that shirking behaviors in teams are indeed pervasive. Production levels were significantly lower under team incentives than under individual incentives while the time dedicated to on-the-job leisure activities (Internet usage) was significantly larger under team incentives than under individual incentives. Subsequently, we find that a very weak form of peer monitoring (anonymous and without physical proximity, verbal threats or face to face interactions) allowed organizations using team incentives to perform as well as those using individual incentives. This provides strong evidence for the conjecture of Kandel and Lazear (1992) that peer pressure may resolve the moral hazard in teams problem.

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Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 13-01.

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Length: 52 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:chu:wpaper:13-01
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