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Research Institute of Industrial Economics (IFN) Working Paper Series

No 565:
Social Norms and Optimal Incentives in Firms

Steffen Huck, Dorothea Kübler and Jörgen Weibull ()

Abstract: This paper deals with the interplay between economic incentives and social norms in firms. We outline a simple model of team production and provide preliminary results on linear incentive schemes in the presence of a social norm that may cause multiple equilibria. The effect of the social norm on the optimal bonus rate is discussed, as well as the effectiveness of temporary changes in the bonus rate as a means to move a firm from a bad to a good equilibrium.

Keywords: Social Norms; Incentives; Contracts; (follow links to similar papers)

JEL-Codes: D23; (follow links to similar papers)

12 pages, October 8, 2001

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