Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 466: Social norms and optimal incentives in firms

Steffen Huck, Dorothea Kübler and Jörgen Weibull ()
Additional contact information
Steffen Huck: Royal Holloway, Dept. of Economics, Postal: Royal Holloway, Dept. of Economics, Egham Surrey TW20 0EX, United Kingdom
Dorothea Kübler: Humboldt University Berlin, Dept. of Economics, Postal: Humboldt University, Dept. of Economics, Spandauer Str. 1, D-10178 Berlin, Germany
Jörgen Weibull: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

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

JEL-codes: D23

12 pages, October 16, 2001

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