The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation Systems

57 Pages Posted: 11 Jun 2000

See all articles by William E. Encinosa

William E. Encinosa

U.S. Department of Health and Human Services - Agency for Healthcare Research and Quality - Center for Delivery, Organization and Markets

Martin Gaynor

Carnegie Mellon University; National Bureau of Economic Research (NBER); Leverhulme Centre for Market and Public Organisation

James B. Rebitzer

Boston University School of Management; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Bard College - The Levy Economics Institute

Multiple version iconThere are 2 versions of this paper

Date Written: March 1997

Abstract

This paper incorporates the sociological concept of group norms' into an economic analysis of pay systems. We use a behavioral microeconomic model and a unique survey of medical groups to examine the theoretical and empirical relationship between group norms and incentive pay. Our findings suggest that, at least for medical groups, norms are binding constraints in the choice of pay practices. While group norms matter, the patterns in the data suggest that they are not all that matters. Analysis of the preferences and activities of individual physicians indicate that factors highlighted by the economic theory of agency, notably income insurance and multi-task considerations, also shape pay policies. The conclusion we draw from these results is that the sociological concept of group norms augments rather than replaces more conventional economic analyses of pay practices.

Suggested Citation

Encinosa, William E. and Gaynor, Martin and Rebitzer, James B., The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation Systems (March 1997). NBER Working Paper No. w5953. Available at SSRN: https://ssrn.com/abstract=225733

William E. Encinosa (Contact Author)

U.S. Department of Health and Human Services - Agency for Healthcare Research and Quality - Center for Delivery, Organization and Markets ( email )

540 Gaither Road
Rockville, MD 20850
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Martin Gaynor

Carnegie Mellon University ( email )

H. John Heinz III School of Public Policy
and Management
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National Bureau of Economic Research (NBER)

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Leverhulme Centre for Market and Public Organisation

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James B. Rebitzer

Boston University School of Management ( email )

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National Bureau of Economic Research (NBER)

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United States

IZA Institute of Labor Economics

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

Bard College - The Levy Economics Institute

Blithewood
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United States

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