Incentives, Identity, and Organizational Forms
Abstract This paper studies the optimal organizational form and the optimal type of manager by considering the nonmaterial (psychological) payoff as well as the standard material payoff for agents. I compare two organizational forms: T-form, where all agents have the same job title so that they are in a single reference group; and H-form, where one agent is appointed to be the manager and the others are subordinates who form a reference group. I show that the principal should appoint a more (less) able agent to be the manager when the effects of peer pressure are more (less) critical. In addition, I find the conditions under which H-form is more likely to be preferred to T-form. Finally, I discuss the phenomenon of the proliferation of job titles in the context of this model.
|Date of creation:||Jul 2009|
|Date of revision:||Jul 2009|
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- Kohei Daido, 2003.
"Peer Pressure and Incentives,"
Discussion Papers in Economics and Business
03-13, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
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IZA Discussion Papers
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- George A. Akerlof & Rachel E. Kranton, 2005. "Identity and the Economics of Organizations," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 9-32, Winter.
- Kohei Daido, 2004. "Risk-averse agents with peer pressure," Applied Economics Letters, Taylor & Francis Journals, vol. 11(6), pages 383-386.
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