Social Norms and Economic Incentives in Firms
University College London - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)
Social Science Research Center (WZB); Technische Universität Berlin (TU Berlin) - Faculty of Economics and Management; Institute for the Study of Labor (IZA)
Jorgen W. Weibull
Boston University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)
IZA Discussion Paper No. 5264
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.
Number of Pages in PDF File: 28
Keywords: social norms, incentives, contracts
JEL Classification: D23
Date posted: October 25, 2010
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