Peer Effects and Incentives

Matthias Kräkel

No 03/2014, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)

Abstract: In a multi-agent setting, individuals often compare own performance with that of their peers. These comparisons influence agents' incentives and lead to a noncooperative game, even if the agents have to complete independent tasks. I show that depending on the interplay of the peer effects, agents' efforts are either strategic complements or strategic substitutes. I solve for the optimal monetary incentives that complement the peer effects and show that the principal prefers sequential effort choices of the agents to choosing efforts simultaneously.

Keywords: externalities; moral hazard; other-regarding preferences (search for similar items in EconPapers)
JEL-codes: C72 D03 D86 (search for similar items in EconPapers)
Date: 2014
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Journal Article: Peer effects and incentives (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bonedp:032014

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