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Transparency, Inequity Aversion, and the Dynamics of Peer Pressure in Teams: Theory and Evidence

Author

Listed:
  • Mohnen, Alwine

    (Munich University of Technology)

  • Pokorny, Kathrin

    (University of Cologne)

  • Sliwka, Dirk

    (University of Cologne)

Abstract

We provide an explanation for peer pressure in teams based on inequity aversion. Analyzing a two-period model with two agents, we find that the effect of inequity aversion strongly depends on the information structure. When contributions are unobservable, agents act as if they were purely selfish. However, when contributions are made transparent at an interim stage, agents exert higher efforts in the first period and adjust their efforts according to the interim information in the second period. This form of peer pressure reduces free-riding and thus, more efficient outcomes are attained. The results are confirmed in a real effort experiment.

Suggested Citation

  • Mohnen, Alwine & Pokorny, Kathrin & Sliwka, Dirk, 2008. "Transparency, Inequity Aversion, and the Dynamics of Peer Pressure in Teams: Theory and Evidence," IZA Discussion Papers 3281, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3281
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    More about this item

    Keywords

    real effort; team; transparency; peer pressure; free-riding; incentives; inequity aversion; experiment;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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