Incentive Effects of Peer Pressure in Organizations

Article OPEN
Kohei Daido (2006)
  • Journal: Economics Bulletin, volume 10, issue 14, pages 1-10
  • Subject: Heterogeneity
    • jel: jel:J3 | jel:M0

This paper studies the effects of peer pressure on incentives. We assume that, in addition to the material payoff, each agent's utility includes the psychological payoff from peer pressure generated by a comparison of effort costs. We show that the optimal incentive schemes depend mainly on the degree of peer pressure and of the heterogeneity of agents. Furthermore, we examine the optimal organizational forms in terms of the principal''s intention to make use of the effects of peer pressure.
  • References (6)

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    [2] Daido, K., 2006, Peer Pressure and Incentives, Bulletin of Economic Research, 58, 51-60..

    [3] Fehr, E. and K. M. Schmidt, 1999, A Theory of Fairness, Competition and Cooperation, Quarterly Journal of Economics, 114, 817-868.

    [4] Itoh, H., 2003, A Course in Contract Theory (in Japanese), Yuhikaku, Tokyo.

    [5] Itoh, H., 2004, Moral Hazard and Other-Regarding Preferences, Japanese Economic Review 55, 18-45.

    [6] Kandel, E. and E.P. Lazear, 1992, Peer Pressure and Partnerships, Journal of Political Economy 100, 801-817.

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