28 Pages Posted: 25 Oct 2010
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.
Keywords: social norms, incentives, contracts
JEL Classification: D23
Suggested Citation: Suggested Citation
Huck, Steffen and Kübler, Dorothea and Weibull, Jorgen W., Social Norms and Economic Incentives in Firms. IZA Discussion Paper No. 5264. Available at SSRN: https://ssrn.com/abstract=1696888