Matching with peer monitoring

Pak Hung Au and Bin R. Chen

Journal of Economic Theory, 2021, vol. 192, issue C

Abstract: Evidence for positive peer effects in production has been well-documented in empirical studies, and these effects are found to be more significant in teams composed of members with heterogeneous abilities. By modeling peer effect as mutual monitoring between members, we show that the total agency cost is minimized by maximizing skill diversities in the teams. This result provides a novel explanation for why worker heterogeneity can strengthen peer effects.

Keywords: Peer pressure; Worker heterogeneity; Teams; Sorting (search for similar items in EconPapers)
JEL-codes: C78 D82 L23 M54 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:192:y:2021:i:c:s0022053120301654

DOI: 10.1016/j.jet.2020.105172

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