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Incentives, Identity, and Organizational Forms

  • Kohei Daido

    ()

    (School of Economics, Kwansei Gakuin University)

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.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp47.pdf
File Function: First version, 2009
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Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 47.

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Length: 20 pages
Date of creation: Jul 2009
Date of revision: Jul 2009
Handle: RePEc:kgu:wpaper:47
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  1. Kohei Daido, 2004. "Risk-averse agents with peer pressure," Applied Economics Letters, Taylor & Francis Journals, vol. 11(6), pages 383-386.
  2. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-17, August.
  3. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
  4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  5. Huck, Steffen & Kübler, Dorothea & Weibull, Jörgen W., 2010. "Social Norms and Economic Incentives in Firms," IZA Discussion Papers 5264, Institute for the Study of Labor (IZA).
  6. Kohei Daido, 2006. "Peer Pressure and Incentives," Bulletin of Economic Research, Wiley Blackwell, vol. 58(1), pages 51-60, 01.
  7. Robert Gibbons, 2005. "What is Economic Sociology and Should any Economists Care?," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 3-7, Winter.
  8. 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.
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