Peer Pressure and Moral Hazard in Teams: Experimental Evidence

Abstract

Team incentives have been found to be particularly effective both in the lab and in the field despite the moral hazard in teams problem identified by Holmström (1982). In a newly developed virtual workplace, we show that, in line with Holmström, moral hazard in teams is indeed pervasive. Subsequently, we find strong evidence for the conjecture of Kandel and Lazear (1992) that peer pressure may resolve the moral hazard in teams problem. Organizations equipped with a very weak form of peer monitoring (anonymous and without physical proximity, verbal threats or face-to-face interactions) perform as well as those using individual incentives.

Goal Setting and Monetary Incentives: When Large Stakes Are Not Enough

“…Our experimental methodology enables us to control for confounding factors that may have interfered in the empirical evaluation of goal setting policies such as corporate culture, explicit 2 and implicit incentives as well as supervision policies. To that end, we consider a laboratory environment which reproduces several features of field environments while keeping control over the decision environment (Corgnet et al (2013)). Our experimental approach to the analysis of goal-setting is novel in many ways.…”

“…The increase in average production levels until period 5 is associated with a corresponding increase in average goals. The decrease in average production levels at the end of the experiment, which may be due to boredom and fatigue (Corgnet et al (2013)), is followed by a decrease in average goals.…”

“…performance and subsequent production (Corgnet et al, 2013). 13 According to this criterion, the proportion of participants who are characterized as high-ability workers is equal to 55.9%…”

“…In our experiments, the average production level following the completion of the first ability. In particular, we considered as alternative ability measures the absolute and the relative performance of a given participant in a previous experiment in which participants had to undertake a similar summation task in groups of ten workers (Corgnet et al 2013). Relative performance was assessed by classifying participants according to their rank in a given experimental session.…”

Team characteristics, peer competition threats and individual performance within a working team: An analysis of realtor agents

“…According to Lee's results, the individual performance of agents under a Type I compensation scheme, which is similar to the Japanese model of a high base salary and a low proportion of compensation based on performance, is not significantly better than the individual performance of agents under a Type II compensation scheme, which is similar to the American model of zero base salary and a high proportion of compensation based on performance. Corgnet, Hernan-Gonzalez and Rassenti (2013) found that, with the use of team awards, those individuals entrusted by the organization with peer supervision will exert strong peer pressure to bring organizational production levels to a greater level of productivity.…”