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Peer effects and incentives

Matthias Kräkel

Games and Economic Behavior, 2016, vol. 97, issue C, 120-127

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, but the Informativeness Principle always applies. I solve for the optimal monetary incentives that complement the peer effects. In case of limited liability, the principal may prefer to implement inefficiently large efforts although agents earn positive rents that increase in the respective agent's effort level.

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: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Peer Effects and Incentives (2014) Downloads
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DOI: 10.1016/j.geb.2016.04.005

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