Social Norms and Economic Incentives in Firms

This paper studies the interplay between economic incentives and social norms in firms. Weintroduce a general framework to model social norms arguing that norms stem from agents’desire for, or peer pressure towards, social efficiency. In a simple model of team productionwe examine the interplay of different types of contracts with social norms. We show that oneand the same norm can be output-increasing, neutral, or output-decreasing depending on theincentive scheme. We also show how social norms can induce multiplicity of equilibria andhow steeper economic incentives can reduce effort....