Social Incentives in Organizations

Posted: 7 Sep 2018

See all articles by Nava Ashraf

Nava Ashraf

Harvard Business School

Oriana Bandiera

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: August 2018

Abstract

We review the evidence on social incentives, namely on how social interactions with colleagues, subordinates, bosses, customers, and others shape agents’ effort choices in organizations. We propose a two-way taxonomy based on ( a) whether the social group is horizontal (peers at the same level of the hierarchy) or vertical (individuals at different levels within or outside of the organization) and ( b) whether the agent's effort creates externalities for the other members of their social group. We show settings in which social incentives improve productivity and settings in which they reduce it. In most cases, the size of the effect is approximately 10%, which is half of the typical effect of performance pay. We also show that social incentives can interfere with financial incentives, making them ineffective or even detrimental. We conclude that social incentives are a powerful motivator that must be taken into account in the design of organizational policies and that more research is needed to understand how policies can shape the preferences that underpin these incentives.

Suggested Citation

Ashraf, Nava and Bandiera, Oriana, Social Incentives in Organizations (August 2018). Annual Review of Economics, Vol. 10, pp. 439-463, 2018. Available at SSRN: https://ssrn.com/abstract=3245095 or http://dx.doi.org/10.1146/annurev-economics-063016-104324

Nava Ashraf (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-5058 (Phone)
617-496-4191 (Fax)

Oriana Bandiera

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7519 (Phone)
+44 20 7055 6951 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

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

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