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Social Capital, Corporate Culture and Incentive Intensity

  • Rafael Rob
  • Peter Zemsky

We study the design of incentives in a firm in which cooperation among workers is important. Since cooperation is not observed, the firm is unable to reward workers for it. Workers may, nonetheless, cooperate because they derive direct utility from cooperation. This utility is endogenously determined and depends on how much others have cooperated in the past as well as on the firm's incentive intensity. Consequently, incentives are chosen with the aim of enhancing workers' utility from cooperation or of building ``social capital.'' We show that the optimal choice of incentives can create cultural differences across firms.

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Paper provided by Penn Economics Department in its series Penn CARESS Working Papers with number 7380c2f90d0b2f362ad71f139839df18.

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Handle: RePEc:cla:penntw:7380c2f90d0b2f362ad71f139839df18
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