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Social Norms and Economic Incentives in Firms

  • Huck, Steffen

    ()

    (University College London)

  • Kübler, Dorothea

    ()

    (WZB - Social Science Research Center Berlin)

  • Weibull, Jörgen W.

    ()

    (Stockholm School of Economics)

This paper studies the interplay between economic incentives and social norms in firms. We introduce a general framework to model social norms arguing that norms stem from agents’ desire for, or peer pressure towards, social efficiency. In a simple model of team production we examine the interplay of different types of contracts with social norms. We show that one and the same norm can be output-increasing, neutral, or output-decreasing depending on the incentive scheme. We also show how social norms can induce multiplicity of equilibria and how steeper economic incentives can reduce effort.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5264.

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Length: 28 pages
Date of creation: Oct 2010
Date of revision:
Publication status: published in: Journal of Economic Behavior & Organization, 2012, 83 (2), 173-185
Handle: RePEc:iza:izadps:dp5264
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  1. Kubler, Dorothea, 2001. "On the Regulation of Social Norms," Journal of Law, Economics and Organization, Oxford University Press, vol. 17(2), pages 449-76, October.
  2. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
  3. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-35, December.
  4. Pedro Rey-Biel, 2007. "Inequity Version and Team Incentives," UFAE and IAE Working Papers 677.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  5. Itoh, Hideshi, 1992. "Cooperation in Hierarchical Organizations: An Incentive Perspective," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 321-45, April.
  6. Oliver Hart, 2001. "Norms and the Theory of the Firm," NBER Working Papers 8286, National Bureau of Economic Research, Inc.
  7. Assar Lindbeck & Sten Nyberg & Jörg Weibull, 2003. "Social Norms and Welfare State Dynamics," CESifo Working Paper Series 931, CESifo Group Munich.
  8. Encinosa III, William E. & Gaynor, Martin & Rebitzer, James B., 2005. "The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation Systems," IZA Discussion Papers 1851, Institute for the Study of Labor (IZA).
  9. Strausz, Roland, 1999. "Efficiency in Sequential Partnerships," Journal of Economic Theory, Elsevier, vol. 85(1), pages 140-156, March.
  10. Knez, Marc & Simester, Duncan, 2001. "Firm-Wide Incentives and Mutual Monitoring at Continental Airlines," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 743-72, October.
  11. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
  12. Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1990. "Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," American Economic Review, American Economic Association, vol. 80(1), pages 234-48, March.
  13. Bacharach, Michael, 1999. "Interactive team reasoning: A contribution to the theory of co-operation," Research in Economics, Elsevier, vol. 53(2), pages 117-147, June.
  14. Stefano Demichelis & Jorgen W. Weibull, 2008. "Language, Meaning, and Games: A Model of Communication, Coordination, and Evolution," American Economic Review, American Economic Association, vol. 98(4), pages 1292-1311, September.
  15. Besley, T. & Coate, S., 1990. "Understanding Welfare Stigma: Taxpayer Resentment And Statistical Discrimination," Papers 42, Princeton, Woodrow Wilson School - Discussion Paper.
  16. Yeon-Koo Che & Seung-Weon Yoo, 2001. "Optimal Incentives for Teams," American Economic Review, American Economic Association, vol. 91(3), pages 525-541, June.
  17. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
  18. Andrea Ichino & Giovanni Maggi, 1999. "Work Environment and Individual Background: Explaining Regional Shirking Differentials in a Large Italian Firm," NBER Working Papers 7415, National Bureau of Economic Research, Inc.
  19. Assar Lindbeck & Sten Nyberg & Jšrgen W. Weibull, 1999. "Social Norms And Economic Incentives In The Welfare State," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 1-35, February.
  20. Dufwenberg, Martin & Lundholm, Michael, 2001. "Social Norms and Moral Hazard," Economic Journal, Royal Economic Society, vol. 111(473), pages 506-25, July.
  21. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  22. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
  23. Barron, John M & Gjerde, Kathy Paulson, 1997. "Peer Pressure in an Agency Relationship," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 234-54, April.
  24. Paul Fischer & Steven Huddart, 2008. "Optimal Contracting with Endogenous Social Norms," American Economic Review, American Economic Association, vol. 98(4), pages 1459-75, September.
  25. George A. Akerlof, 1978. "A theory of social custom, of which unemployment may be one consequence," Special Studies Papers 118, Board of Governors of the Federal Reserve System (U.S.).
  26. Vendrik, Maarten C. M., 2003. "Dynamics of a household norm in female labour supply," Journal of Economic Dynamics and Control, Elsevier, vol. 27(5), pages 823-841, March.
  27. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 917-962, August.
  28. Bartling, Björn, 2011. "Relative performance or team evaluation? Optimal contracts for other-regarding agents," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 183-193, August.
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