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Peer Pressure and Moral Hazard in Teams: Experimental Evidence

Author

Listed:
  • Brice Corgnet

    () (Argyros School of Business and Economics, Chapman University)

  • Roberto Hernán González

    (Universidad de Granada)

  • Stephen Rassenti

    (Economic Science Institute, Chapman University)

Abstract

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.

Suggested Citation

  • Brice Corgnet & Roberto Hernán González & Stephen Rassenti, 2013. "Peer Pressure and Moral Hazard in Teams: Experimental Evidence," Working Papers 13-01, Chapman University, Economic Science Institute.
  • Handle: RePEc:chu:wpaper:13-01
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    File URL: http://www.chapman.edu/research-and-institutions/economic-science-institute/_files/WorkingPapers/corgnet-rassenti-peer-pressure-and-moral-hazard.pdf
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Socialism, institutions & human nature
      by chris dillow in Stumbling and Mumbling on 2013-01-28 20:39:57

    Citations

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    Cited by:

    1. Gill, David & Stone, Rebecca, 2015. "Desert and inequity aversion in teams," Journal of Public Economics, Elsevier, vol. 123(C), pages 42-54.
    2. Brice Corgnet & Joaquín Gómez-Miñambres & Roberto Hernán-González, 2015. "Goal Setting and Monetary Incentives: When Large Stakes Are Not Enough," Management Science, INFORMS, vol. 61(12), pages 2926-2944, December.
    3. Katharina M. Eckartz, 2014. "Task enjoyment and opportunity costs in the lab - the effect of financial incentives on performance in real effort tasks," Jena Economic Research Papers 2014-005, Friedrich-Schiller-University Jena.
    4. Georganas, Sotiris & Tonin, Mirco & Vlassopoulos, Michael, 2015. "Peer pressure and productivity: The role of observing and being observed," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 223-232.
    5. Simon Gächter & Lingbo Huang & Martin Sefton, 2016. "Combining “real effort” with induced effort costs: the ball-catching task," Experimental Economics, Springer;Economic Science Association, vol. 19(4), pages 687-712, December.
    6. Corgnet, Brice & Hernán-González, Roberto & Rassenti, Stephen, 2015. "Firing threats: Incentive effects and impression management," Games and Economic Behavior, Elsevier, vol. 91(C), pages 97-113.
    7. William Gilje Gjedrem & Ola Kvaløy, 2018. "Relative Performance Feedback to Teams," CESifo Working Paper Series 6871, CESifo Group Munich.
    8. Brice Corgnet & Roberto Hernán-González, 2015. "Revisiting the Tradeoff between Risk and Incentives: The Shocking Effect of Random Shocks," Working Papers 15-05, Chapman University, Economic Science Institute.
    9. Brice Corgnet & Roberto Hernán-Gonzalez & Stephen Rassenti, 2013. "Firing Threats and Tenure: Incentive effects and impression management," Working Papers 13-15, Chapman University, Economic Science Institute.
    10. Brice Corgnet & Ludivine Martin & Peguy Ndodjang & Angela Sutan, 2015. "On the Merit of Equal Pay: When Influence Activities Interact with Incentive Setting," Working Papers 15-09, Chapman University, Economic Science Institute.
    11. Koch, Alexander K. & Nafziger, Julia, 2016. "Gift exchange, control, and cyberloafing: A real-effort experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 409-426.

    More about this item

    Keywords

    Incentives; free-riding; monitoring; peer pressure; organization theory;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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