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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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  9. 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.
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  11. 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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  18. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
  19. Pedro Rey Biel, 2004. "Inequity aversion and team incentives," Microeconomics 0407009, EconWPA.
  20. Oliver Hart, 2001. "Norms and the Theory of the Firm," NBER Working Papers 8286, National Bureau of Economic Research, Inc.
  21. Strausz, Roland, 1999. "Efficiency in Sequential Partnerships," Journal of Economic Theory, Elsevier, vol. 85(1), pages 140-156, March.
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  23. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
  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. Stefano Demichelis & Jörgen W. Weibull, 2007. "Language, meaning and games: a model of communication, coordination and evolution," Carlo Alberto Notebooks 61, Collegio Carlo Alberto.
  26. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-35, December.
  27. Lindbeck, Assar & Nyberg, Sten & Weibull, Jörgen W., 1997. "Social Norms and Economic Incentives in the Welfare State," Working Paper Series 476, Research Institute of Industrial Economics.
  28. 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.
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