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Peer Effects and Incentives

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  • Kräkel, Matthias

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. I solve for the optimal monetary incentives that complement the peer effects and show that the principal prefers sequential effort choices of the agents to choosing efforts simultaneously.

Suggested Citation

  • Kräkel, Matthias, 2014. "Peer Effects and Incentives," Bonn Econ Discussion Papers 03/2014, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:032014
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    Cited by:

    1. Julien Senn & Jan Schmitz & Christian Zehnder, 2023. "Leveraging social comparisons: the role of peer assignment policies," ECON - Working Papers 427, Department of Economics - University of Zurich, revised Aug 2023.
    2. Koch, Simon & Weinschenk, Philipp, 2021. "Contract design with socially attentive preferences," Games and Economic Behavior, Elsevier, vol. 130(C), pages 591-601.
    3. Gerhards, Leonie & Gravert, Christina, 2020. "Because of you I did not give up – Peer effects in perseverance," Journal of Economic Psychology, Elsevier, vol. 81(C).
    4. Weinschenk, Philipp, 2019. "Contract Design with Socially-Attentive Preferences," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203546, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    externalities; moral hazard; other-regarding preferences;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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