Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 565: Social Norms and Optimal Incentives in Firms

Steffen Huck, Dorothea Kübler and Jörgen Weibull ()
Additional contact information
Steffen Huck: Royal Holloway, Postal: Department of Economics, Egham, Surrey, TW20 0EX, United Kingdom
Dorothea Kübler: Humboldt University Berlin, Postal: Department of Economics, Spandauer Str. 1, D-10178 Berlin, Germany
Jörgen Weibull: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 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 8, 2001

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