Peer Pressure and Moral Hazard in Teams: Experimental Evidence

Brice Corgnet, Roberto Hernan Gonzalez and Stephen Rassenti

Working Papers from Chapman University, Economic Science Institute

Abstract: Holmström (1982) established that free riding behaviors are pervasive whenever people are paid according to aggregate measures of output such as team incentives. However, team incentives have been found to be particularly effective both in the lab and in the field. In this paper we show, in line with Holmström (1982), that shirking behaviors in teams are indeed pervasive. Production levels were significantly lower under team incentives than under individual incentives while the time dedicated to on-the-job leisure activities (Internet usage) was significantly larger under team incentives than under individual incentives. Subsequently, we find that a very weak form of peer monitoring (anonymous and without physical proximity, verbal threats or face to face interactions) allowed organizations using team incentives to perform as well as those using individual incentives. This provides strong evidence for the conjecture of Kandel and Lazear (1992) that peer pressure may resolve the moral hazard in teams problem.

Keywords: Incentives; free-riding; monitoring; peer pressure; organization theory (search for similar items in EconPapers)
JEL-codes: C92 D23 M52 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2013
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-hrm
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Citations: View citations in EconPapers (19)

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Journal Article: Peer Pressure and Moral Hazard in Teams: Experimental Evidence (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:13-01

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