Social Norms and Economic Incentives in Firms

28 Pages Posted: 25 Oct 2010  

Steffen Huck

University College London - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Dorothea Kübler

Social Science Research Center (WZB); Technische Universität Berlin (TU Berlin) - Faculty of Economics and Management; IZA Institute of Labor Economics

Jorgen W. Weibull

Boston University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

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

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

Steffen Huck (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 207 679 5895 (Phone)
+44 207 916 2774 (Fax)

HOME PAGE: http://www.ucl.ac.uk/~uctpshu/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Dorothea F. Kübler

Social Science Research Center (WZB) ( email )

Reichpietschufer 50
D-10785 Berlin, 10785
Germany
40 30 25491440 (Phone)

HOME PAGE: http://www.wzb.eu/mp/vam/people/dorothea_kuebler.de.htm

Technische Universität Berlin (TU Berlin) - Faculty of Economics and Management ( email )

D-10623 Berlin
Germany
+49 30 31425263 (Phone)

HOME PAGE: http://www.wiwi-experimente.tu-berlin.de/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Jorgen W. Weibull

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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