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Incentives, Identity, and Organizational Forms

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  • 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.

Suggested Citation

  • Kohei Daido, 2009. "Incentives, Identity, and Organizational Forms," Discussion Paper Series 47, School of Economics, Kwansei Gakuin University, revised Jul 2009.
    • Handle: RePEc:kgu:wpaper:47
    as

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    References listed on IDEAS

    as
    1. Kohei Daido, 2006. "Peer Pressure and Incentives," Bulletin of Economic Research, Wiley Blackwell, vol. 58(1), pages 51-60, January.
    2. 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.
    3. Huck, Steffen & Kübler, Dorothea & Weibull, Jörgen, 2012. "Social norms and economic incentives in firms," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 173-185.
    4. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-817, August.
    5. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    6. Hideshi Itoh, 2004. "Moral Hazard and Other‐Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45, March.
    7. 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 234-254, April.
    8. 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.
    9. Kohei Daido, 2004. "Risk-averse agents with peer pressure," Applied Economics Letters, Taylor & Francis Journals, vol. 11(6), pages 383-386.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Principal-agent Model; Multiagents; Moral Hazard; Reference Group; Peer Pressure; Identity; Proliferation of Job Titles.;
    All these keywords.

    JEL classification:

    • B49 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Other
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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