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The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation Systems

  • Encinosa III, William E.

    (Agency for Health Care Research and Quality)

  • Gaynor, Martin

    ()

    (Carnegie Mellon University)

  • Rebitzer, James B.

    ()

    (Boston University)

When working together, people engage in non-contractual and informal interactions that constitute the sociology of the group. We use behavioral models and a unique survey of medical groups to analyze how group sociology influences physician incentive pay and behavior. We conclude that informal interactions among group members influence pay practices and behaviors, but the relationship is complex. No single aspect of group sociology is entirely consistent with all the patterns in the data. Factors emphasized in the economic theory of agency, notably risk aversion, also shape pay policies but these factors cannot account for all the observed empirical relationships.

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File URL: http://ftp.iza.org/dp1851.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1851.

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Length: 47 pages
Date of creation: Nov 2005
Date of revision:
Publication status: published in: Journal of Economic Behavior and Organization, 2007, 62 (2), 187-214
Handle: RePEc:iza:izadps:dp1851
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  1. Encinosa III, William E. & Gaynor, Martin & Rebitzer, James B., 2007. "The sociology of groups and the economics of incentives: Theory and evidence on compensation systems," Journal of Economic Behavior & Organization, Elsevier, vol. 62(2), pages 187-214, February.
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  24. Milgrom, Paul & Roberts, John, 1990. "The Efficiency of Equity in Organizational Decision Processes," American Economic Review, American Economic Association, vol. 80(2), pages 154-59, May.
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