Transparency, Inequity Aversion, and the Dynamics of Peer Pressure in Teams: Theory and Evidence

Alwine Mohnen · Kathrin Pokorny · Dirk Sliwka

126 citations0/0 files storedJournal of Labor Economics

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Experimental Behavioral Economics Studies Decision-Making and Behavioral Economics Game Theory and Voting Systems

Abstract

We provide an explanation for peer pressure in teams based on inequity aversion. Analyzing a two‐period model with two agents, we find that the effect of inequity aversion strongly depends on the information structure. When contributions are unobservable, agents act as though they were purely selfish. However, when contributions are made transparent at an interim stage, agents exert higher efforts in the first period and adjust their efforts according to the interim information in the second period. This form of peer pressure reduces free riding, and thus more efficient outcomes are attained. The results are confirmed in a real effort experiment.

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References

1999A Theory of Fairness, Competition, and Cooperation 1996Production, Information Costs and Economic Organization 2000ERC: A Theory of Equity, Reciprocity, and Competition 1982Moral Hazard in Teams 1999The Provision of Incentives in Firms 1992Peer Pressure and Partnerships 2004An Online Recruitment System for Economic Experiments 2005Clean Evidence on Peer Effects

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