Peer Pressure and Incentives

10 Pages Posted: 8 May 2006

See all articles by Kohei Daido

Kohei Daido

Kwansei Gakuin University - School of Economics

Abstract

We study the effects of peer pressure on incentives. To this end, we extend a multiagent model with moral hazard and limited liability by introducing a peer pressure function. We show that the optimal incentive for the less productive agent is more high powered than that for the more productive agent in the case with peer pressure. Moreover, in comparison with the case without peer pressure, the optimal incentive for the less productive agent becomes more high powered, while the optimal incentive for the more productive agent becomes less high powered.

Suggested Citation

Daido, Kohei, Peer Pressure and Incentives. Bulletin of Economic Research, Vol. 58, No. 1, pp. 51-60, January 2006, Available at SSRN: https://ssrn.com/abstract=878184 or http://dx.doi.org/10.1111/j.0307-3378.2006.00233.x

Kohei Daido (Contact Author)

Kwansei Gakuin University - School of Economics ( email )

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Japan
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